More chilling warnings about the impact of oversized rate hikes on house prices could expose homeowners to a 40% increase in refunds.
House prices could fall by 20% across Australia over the next 18 months, experts have warned.
Investment major Jarden says Sydney and Melbourne are set to be hit even harder by a steeper decline in property prices as homebuyers’ borrowing power declines due to oversized rate hikes.
It predicts house prices will fall 5% this year and another 10-15% in 2023.
It would be the biggest drop in home values in 40 years.
“The falls in Sydney and Melbourne are likely to be bigger and faster,” said Jarden chief economist Carlos Cacho.
“This would be the biggest house price correction since at least 1980.”
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Interest rates will also soar to 2.5% by the end of the year, the bank has warned.
Rate hikes would mean a 25% drop in homebuyers’ borrowing capacity by year-end, analysis finds, though weaker housing outlook ‘drags economic activity until 2023″ and see rate increases reduced from the second half of the year. next year, according to his analysis.
“Separately, rising energy prices and continued inflationary pressures lead us to raise our peak inflation forecast to 6.7% year-on-year by September 2022. It was 6%,” Ms. Cacho.
“All of this should lead to a slowdown in consumption in 2023, especially for discretionary spending categories such as household goods.”
Reserve Bank Governor Philip Lowe had a gloomier forecast for inflation, predicting it would hit 7% by the end of the year, with his comments prompting experts to warn that a rise in rate of 0.5% would arrive in July.
It comes as interest rates fell from a record low of 0.1% to 0.85% in just two months.
Cacho said the impact of rising interest rates on homeowners would be “most intense” throughout 2023, as $265 billion to $365 billion in fixed-rate loans expire.
“In our view, this surge in fixed rate maturities is likely to see many borrowers face a 40% increase in repayments and lead to a significant increase in refinancing activity,” Cacho said.
The slowdown will also affect new home construction which will fall to 130,000 this year – the lowest since 2012 – Jarden found, but will rebound next year to 180,000.
“However, we believe that completions/activities will not drop significantly until mid-2023, given the significant construction delays and record amount of work to be done,” Cacho said.
Jarden’s analysis indicated that house prices could experience a modest recovery at the end of 2023, with forecasts that the banking regulator will reduce the service buffer that banks apply for mortgage loan approvals by 3 % to 2%.
There is a consensus that real estate prices will experience dramatic declines in the months and year ahead.
Last week, another major bank – the Commonwealth Bank – also predicted that house prices expected to drop 18% in the following two years in Sydney and Melbourne.
And across Australia, its economists have also predicted house prices will fall by 15% over the next 18 months.
They warned that June’s 0.5% rate hike – the biggest in 22 years – will have a chilling effect on house prices in Australia, alongside expectations of a more “aggressive” hike cycle rates in the coming months.
As well as predicting falling prices for Sydney and Melbourne, CommBank economists have seen the Hobart property market take a hit with a 4% drop in property prices expected this year and a 9% drop l Next year, Canberra is also expected to be hit by the same declines.
In Darwin, house prices are expected to fall 1% this year and then 9% next year.
Brisbane, Adelaide and Perth were likely to reverse the national trend this year and would see property prices rise before falling 8-11% in 2023.
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