Last week, Westpac lifted its official cash rate forecast to a peak of 4.1%.
Westpac’s latest Housing Pulse also tips a further 8% decline in national dwelling values in 2023.
“Australia’s housing market correction remains in full swing”, Westpac’s Housing Pulse notes.
“Nationally, turnover is now down by just over 30% from its post–delta high in 2021. Prices across the five major capital cities are now down 9.7% from their peak in Apr 2022 with nearly all sub–markets recording price declines into year–end”.
“Housing–related sentiment remains very weak led by an extended run of pessimistic reads on ‘time to buy a dwelling’, rising interest rates clearly still over–riding any price–driven improvements in affordability”.
“Prices have continued to press lower, down 1.2% in Dec and 1.1% in Jan. While Feb is tracking a much milder 0.1% fall, some of this also appears to be due to the first home buyer policy changes in NSW, slower declines elsewhere likely reflecting a passing hope at the start of the year that the RBA may be about to pause its rate tightening cycle”.
“Nationally, the Westpac Melbourne Institute ‘time to buy a dwelling’ index declined 4.3% over the 3mths to 73.9 in Feb, a new cycle low. The index has been tracking very low levels for a year now, an unusually long period of weakness by historical standards”.
“The take–out for housing markets is that 2023 will be another challenging year, particularly as the RBA continues to ratchet interest rates higher in the first half of the year”.
“Prices are expected to decline a further 8% nationally in 2023, lifting 2% in 2024”, Westpac concludes.
I agree with Westpac that the house price correction will soon reassert itself.
The RBA moved to a more hawkish stance at its February monetary policy meeting, suggesting we should see a few more rate rises.
These will shrink borrowing capacity further, pulling house prices lower in the process.
Meanwhile, only a portion of the RBA’s 3.25% of monetary tightening has been felt by mortgage borrowers, given the usual monetary policy lags and the fact that around one-third of mortgages are currently on fixed rates.
This year, nearly 900,000 borrowers, or 23% of Australia’s total mortgage book, will switch from cheap fixed rate mortgages originated over the pandemic to variable mortgages with rates more than double current levels.
This fixed rate “mortgage cliff” is a major risk to Australia’s housing market and, when combined with a softening labour market, will very likely see a material increase in forced sales, which will also pull house prices lower.
