Economists are forecasting house prices to fall in 2023 as the Reserve Bank hikes interest rates

After eight straight hikes over the past year, the policy rate is now 3.1 percent, but the RBA has begun to consider halting the sharp hikes that are beginning to take hold.

Hassan said an end to rate hikes would mean the market entered the second phase of its correction, but buyer demand would remain weak due to the slowing economy and still comparatively higher interest rates.

He didn’t expect prices to recover until 2024, when he forecast a 2 percent rise on interest rate cuts.

“The third phase is the recovery phase, and that usually doesn’t happen until you have a clear signal that the next rate move is down,” he said.

AMP Capital’s Chief Economist, Dr. Shane Oliver said if interest rates stayed at 3.1 percent, as he suspects, there would be more falls.

“The rise in interest rates has reduced a borrower’s capacity by about 25 percent while prices have fallen by about 8 percent. So even if interest rates stop rising, the impact of higher interest rates still has a lot to work off [to come],” he said.

The path of real estate prices will depend on interest rates.

The path of real estate prices will depend on interest rates.Credit:Jason South

That combined with Oliver’s expectations for a weaker job market and a potential surge in homes for sale next year — as some homeowners facing mortgage stress decide to sell — means he’s down 15 to 20 percent from peak forecast to valley.

He expects prices to fall 20 percent overall in Sydney, about 15 percent in Melbourne and Brisbane, about 10 percent in Adelaide, and 5 percent or less in Darwin and Perth, where price growth is far more muted over the year was boom.

“We likely expect another 9 percent decline [nationally] …to a low in the September quarter. I think the pace of decline is likely to continue to slow,” he said.

“If the RBA then signals that it’s getting close to rate cuts, which we’ll likely see later in the year…that should allow the housing market to bottom out and move higher.”

Economists assume that house prices will continue to fall.

Economists assume that house prices will continue to fall.Credit:Ben Rushton

Commonwealth Bank Australia economics head Gareth Aird also expects the market to bottom around the September quarter, forecasting a 15 percent decline from peak to trough and a fall of as much as 19 percent in Sydney .

“We’re about halfway through that national forecast… but obviously there’s variation between capitals,” he said.

“Prices are rapidly correcting downwards on the east coast, but Perth and Adelaide have been remarkably resilient so far… [but we expect] Prices will fall in all capitals [this year].”

Aird said very tight rental markets, recovering immigration and a tight labor market helped cushion the price declines.

He pushed the cash rate to a high of 3.35 percent earlier this year, but didn’t expect further buyer activity until rate cuts became clear.

“Ultimately what happens will be affected by what the RBA does, but we don’t expect they have to go much further than that,” he said. Economists are forecasting house prices to fall in 2023 as the Reserve Bank hikes interest rates

Brian Lowry

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