CoreLogic’s daily dwelling values index shows that Australian home values have fallen 7.2% from peak, following the Reserve Bank of Australia’s (RBA) 2.75% of monetary tightening:
According to NAB Economics Group’s latest Forward View, the bank expects Australian house prices “to continue to fall well into 2023 as rates continue to rise”. They “see a further 13% reduction in house prices from now, taking the total decline from April this year to around 20%”.
NAB’s house price forecast is based on an expected peak in the official cash rate (OCR) of 3.60% by March 2023, “with the RBA holding rates at that level until early 2024”:
Accordingly, house prices will fall in “response to lower borrowing power – with areas most bound by affordability constraints likely to see the largest falls”.
Moreover, “the move down in prices is unlikely to lead to an improvement in housing affordability due to an offsetting increase in debt servicing costs”.
As illustrated in the next chart, NAB’s OCR forecast implies a discount variable mortgage rate of 6.95% by March 2023, which is double its level in April 2022 immediately before the RBA’s first rate hike:
If the NAB’s OCR forecast was to come to fruition, then average variable mortgage repayments would soar 48% above their pre-tightening level, adding around $1,080 in monthly repayments to a $500,000 variable rate mortgage:
There’s simply no way that mortgage rates could double in only 10 months without a major correction in Australian housing values.
