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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.
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.”
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.
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.”
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