A leading economist has forecast a further fall in property prices within the next 12 months due to additional interest rate rises on the horizon as the Reserve Bank of Australia continues to combat inflation.
Supporting his expectations, AMP Capital head of investment strategy and chief economist Shane Oliver noted the full impact of the most recent interest rate rises had yet to be witnessed as it takes around two to three months for the changes to have an effect on mortgages.
“[Also] there are still more rate hikes to come [and] two-thirds of the 40 per cent of households with a mortgage on fixed rates will see their mortgage rate reset from around 2 per cent to around 5 or 6 per cent by the end of next year, resulting in a sharp rise in mortgage stress,” Oliver predicted.
“And economic conditions are set to deteriorate though next year as weaker global growth and rate hikes lead to slower growth locally and rising unemployment.
“The combination will result in a further weakening in homebuyer demand and a potential increase in supply as some financially stressed homeowners are forced to sell.
“As a result, there is a high risk that the pace of decline could reaccelerate next year and we continue to expect national home prices will have a top to bottom fall of 15 to 20 per cent out to around September quarter next year, of which we are only about one-third of the way through.”
According to Oliver, the property market could experience an even larger fall should the official interest rate reach 4 per cent.
“If money market forecasts for a peak cash rate of over 4 per cent are reached, this would more than double average household interest payments and push total mortgage repayments [interest and principal] to record highs relative to household income and likely drive a 30 per cent or so fall in prices,” he said.
On a positive note, he cited certain elements that could alleviate the severity of the fall in real estate prices.
“These include various government support programs, including expanded access to home deposit schemes, the federal government’s Help to Buy scheme and NSW first-home buyers likely swapping stamp duty for land tax next year, the tight rental property market, which is pushing up rental yields and may support investor demand, and rapidly rising immigration levels,” he said.
However, he suggested the Australian public should not expect the property market to rebound until the official interest rate begins to fall, which is unlikely to be before late 2023.
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