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Australia’s property market is on the cusp of a “volatile” price change as looming interest rate hikes and reducing COVID-19 measures threaten to end the boom.

Senior analysts at industry research firm IBISWorld have predicted that in 2022-23, Australian house prices will fall by 5.2 per cent with some locations – such as Sydney’s inner suburbs – predicted to plunge by as much as 9.2 per cent.

The predicted fall comes after housing prices surged by 18.1 per cent in 2021-22, the largest annual increase in Australian history.

Aussie house prices are tipped to fall in the coming year after experiencing the biggest annual boom in history. (Peter Rae)

IBISWorld senior industry analyst Matthew Reeves said the headwinds facing the property market are varied and complex.

“The negative outlook for house prices has been driven by a wide range of factors,” Mr Reeves said.

“These include monetary policy, the effects of the COVID-19 pandemic, a loss of consumer and investor confidence as a result of the Russia-Ukraine conflict, and a hangover from escalating house prices in recent years.”

Looming interest rate hikes and the soaring cost of living will take some pressure off the housing market. (Peter Rae)

Much of Australia’s property boom has been attributed to record-low interest rates, after the Reserve Bank of Australia slashed the cash rate to 0.1 per cent in the fears that COVID-19 would carve unrecoverable path through the economy.

Now the reverse has happened, and with soaring inflation the central bank may be forced to raise rates earlier than anticipated by many homebuyers who rushed into the market during the peak of the pandemic.

“Pressure from other overseas reserve banks may prompt the RBA to raise the cash rate in 2021-22, but certainly in 2022-23,” Mr Reeves said.

Despite ramped-up initiatives to encourage more first homebuyers into the market, many Australians are choosing to “wait out” the market before buying. (Peter Rae)

IBISWorld analysts now expect interest rates to rise at an average annual rate of 0.27 percentage points to 1.45 per cent in 2026-27.

“Tighter lending standards will likely exacerbate rising mortgage rates,” the analysts warn.

“This is due to the Banking Royal Commission, which mandated improved lending standards for lower income earners. Interest rate rises come at a time of high levels of household debt.

“Borrowers are more susceptible to small changes in interest rates during high levels of household debt, and debt stress could trigger a decline in housing prices.”

Bondi Beach property sells for $1 million over reserve

The information provided on this website is general in nature only and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information on this website you should consider the appropriateness of the information having regard to your objectives, financial situation and needs.

Source: 9News

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