Australia’s housing boom to deflate as mortgage rates rise: poll

RAMPANT rises in Australian house prices will grind almost to a halt this year, and an 8 per cent decline is expected in 2023 as a cost-of-living crisis worsens and mortgage rates rise, a Reuters poll of property market analysts found. Cheap loans based on near-zero interest rates have nearly doubled house prices since the global financial crisis of the late 2000s, turning Australia into one of the world’s least affordable places to buy property. Prices surged over 20 per cent last year, the biggest annual increase since 1989, making it much harder for first-time buyers to get on the property ladder. That blistering pace will slow to just 1.0 per cent this year, according to the median forecast in the May 11-25 poll of 11 analysts, down sharply from 6.7 per cent forecast in a February poll. Prices are forecast to drop 8.0 per cent next year, more than the 5.0 per cent expected in the previous survey. “The risk of a crash cannot be ignored, given the high level of household debt and that it’s been more than 11 years since the last rate hike,” said Shane Oliver, chief economist at AMP, who expects house prices to fall 10-15 per cent into 2024. Record mortgage debt

Australia’s central bank this month raised its cash rate for the first time since November 2010, by 25 basis points to 0.35 per cent, and flagged more hikes to come. A sudden rise in borrowing costs could sharply dent housing activity, in a country where about 6 per cent of employment is closely tied to the residential construction sector, eventually leading to slower economic growth. “A steep increase in mortgage rates over the coming year will weigh heavily on house prices,” said Adelaide Timbrell, senior economist at ANZ. It will also be a challenge for heavily indebted households in a country which has a record A$2 trillion (S$1.95 trillion) of mortgage debt outstanding. A substantial decline in prices is needed to make housing more affordable for those who don’t already own. “A very large correction in prices would be needed to enable ‘affordable’ housing, particularly in Sydney and Melbourne, though the wage outlook is key to how much of a correction would be needed,” Timbrell added. Wages are lagging, at least by the official measure which showed annual pay growth ticked up only slightly in the first quarter to 2.4 per cent, half the pace of inflation. Both ANZ and Knight Frank said average prices would have to fall 40 per cent – roughly the amount US house prices tumbled during the global financial crisis – to make Australian housing affordable. House prices in Sydney and Melbourne were forecast to fall 2.5-3.0 per cent this year and 9.0 per cent next. In Brisbane, Adelaide and Perth, prices were expected to rise 2.0-6.5 per cent this year but decline 4.5 pre cent in 2023. REUTERS