Westpac’s Chief Economist Bill Evans has predicted that the currently roaring property market will enter a “correction phase” in 2023, in line with the Reserve Bank of Australia’s indications of a rise in interest rates.
But don’t expect to snag a bargain. Mr Evans said the market is still expected to post huge booms through all of next year.
“As for 2022, the strong momentum will continue but the pace of gains is expected to slow, levelling out over the course of next year before moving into a correction phase in 2023,” Mr Evans predicts.
“We expect price growth to slow to 8 per cent in 2022, up from our previous forecast of 5 per cent), with most of that increase loaded into the first half of the year.
“We stick with our previous views that markets will move into the first year of a correction phase in 2023 as official interest rates rise, with prices forecast to retrace by 5 per cent.”
Currently Australia’s cash rate is at the historic low level of 0.1 per cent, with the RBA indicating it would not raise rates until there was a measurable increase in inflation.
Mr Evans said a major factor that could change his forecast was the affordability of property, which is becoming so stretched that regulators may have to intervene.
“The wild cards are around investor activity and potential impacts from an extended period of slow population growth,” Mr Evans said.
“But for now, the market has weathered the latest COVID disruptions very well and price momentum has held, prompting us to revise up the near-term outlook for prices before a correction phase begins in 2023 and likely extends into 2024.”
According to property data firm CoreLogic, the total value of residential real estate in Australia is now worth a record-breaking $9.1 trillion – almost a third larger than all superannuation, the ASX and commercial real estate combined.
Australia’s housing values are currently rising at the fastest annual pace since June 1989, having increased by an eye-watering 17.6 per cent over the first nine months of 2021.
“With housing values rising substantially faster than household incomes, raising a deposit has become more challenging for most cohorts of the market, especially first home buyers,” writes CoreLogic’s research director Tim Lawless.
“Sydney is a prime example where the median house value is now just over $1.3 million.
“In order to raise a 20 per cent deposit, the typical Sydney house buyer would need around $262,300. Existing home owners looking to upgrade, downsize or move home may be less impacted as they have had the benefit of equity that has accrued as housing values surged.”
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