Property prices in Sydney and Melbourne look likely to keep falling for at least the rest of the year.
Corelogic figures for August, to be released on Thursday, will likely show another sizable slide in prices.
Andrew Wilson, chief economist at My Housing Market, says property prices falls could bottom by the first quarter of next year
Financial markets are expecting the Reserve Bank of Australia (RBA) to increase official interest rates again next week, probably by 0.5 percentage points. That would make it the fifth consecutive monthly increase in this rate-rising cycle, as our central bank tries to curb burgeoning inflation.
Preliminary Corelogic figures show property prices in Sydney fell 2 per cent in the first 28 days of August, while prices in Melbourne dropped 1.1 per cent in the same period. Falls for the full month are expected to be larger.
The declines come after property prices fell 2.2 per cent in Sydney in July – the sixth monthly dip in a row. In June, prices fell 1.6 per cent.
Melbourne prices have declined for five months in succession, including dips of 1.5 percent in July and 1.1 per cent in June.
The increasing cost of borrowing on the back of higher official interest rates is mainly to blame for the declines.
As the spring selling season begins, more properties are expected to come on to the market at a time of relatively weak demand, which is likely to ensure prices keep falling.
There is a wide range of views among experts as to the likely extent of the price falls.
Martin North, founder of Digital Finance Analytics, says is “quite likely” that the property price declines in our two largest cities will be the biggest on record.
He says retail sales data released by the Australian Bureau of Statistics (ABS) this week mean interest rates will likely have to go significantly higher, which lenders would probably pass on in full to their variable-rate mortgage customers.
The ABS figures show retail sales rose 1.3 per cent in July to be 16.5 per cent higher than the same month a year earlier.
“Credit availability is the biggest influence on [property] prices – borrowing power is already down 20 per cent,” North says, referring to the reduced amount of money that buyers can borrow because of higher mortgage rates.
Russel Chesler, head of investments and capital markets at VanEck Australia, an exchange-traded fund provider, says despite higher interest rates and cost-of-living pressures, households are continuing to spend. And the labour market remains strong, with employment still growing, he says.
“Given such strong data, we can expect a rate rise of 50 basis points from the RBA next week.
“We will likely need to see more official rate rises from the central bank to rein in spending, after the RBA started lifting rates too late to tackle inflation,” he says.
However, Andrew Wilson, chief economist at My Housing Market, has a different view. He says there are some early indications that inflation and interest rates may peak earlier than expected.
He says the property price declines could reach their bottom in the first quarter of 2023, as immigration accelerates, adding to housing demand.
The view among economists is that interest rates are likely to keep rising until they hit 2.5 per cent to 3.5 per cent, significantly above the cash rate’s current level of 1.85 per cent.
Either way, it looks like property prices have a way to fall yet.
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