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Australia’s housing boom to deflate as mortgage rates rise: Reuters poll -Breaking


© Reuters. A excavator can be seen at an apartment block construction site in Epping, Sydney (Australia), February 1, 2019, REUTERS/Tom Westbrook/Files

Vivek Maishra

BENGALURU, (Reuters) – The rapid rise in house prices in Australia will come to a halt in 2018, and a 8% drop in 2023, as a mortgage rate rises and the cost-of living crisis gets worse, according to a Reuters poll.

Near-zero interest rate loans, which are cheap and easy to get, have more than doubled property prices in Australia since the financial crisis that struck the mid 2000s. This has made Australia one of most affordable countries for purchasing property.

The prices rose by more than 20% in the last year. This is the largest annual rise since 1989. It makes it difficult for first-time home buyers to climb the ladder.

This blistering pace is expected to slow down to 1.0% in 2015, according to the median forecast of 11 analysts in the May 11-25 Poll. That’s a sharp drop from the 6.7% forecast in a February Poll.

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According to the latest survey, prices are expected to decline 8.0% by next year. This is more than the 5.0% predicted in the previous survey.

Shane Oliver (OTC: chief economist, AMP) said that the risk of a crash can’t be overlooked, considering the household debt levels and the fact it has been over 11 years since the last rate increase. He expects house prices will fall between 10-15% through 2024. 2efd351e-c305-4b4a-b936-fe23fccdf5f41


Australia’s central banks raised their cash rate by 25 basis points, to 0.35%. They also indicated more increases to come.

In a country with approximately 6% employment tied closely to residential construction, a sudden increase in borrowing costs can severely impact housing activity and eventually lead to slower economic growth.

Adelaide Timbrell (an ANZ senior economist) stated that a sharp rise in mortgage rates will have a significant impact on the house price.

This will be especially true for households with high levels of debt in a country that has A$2 trillion in outstanding mortgage debt.

For housing to become more affordable for people who do not already have it, a substantial drop in its prices is required.

Timbrell stated that “a very significant correction in the prices would be required to allow ‘affordable housing’, particularly in Sydney or Melbourne.”

Official data shows that wages have slowed down, with annual growth of 2.4%, or half as slow, in the quarters to which they were reported.

Knight Frank and ANZ both stated that average house prices must fall by 40% to keep Australian homes affordable. This is roughly equivalent to the drop in U.S. home prices during the global financial crisis.

In Sydney and Melbourne, house prices are expected to drop 2.5-3.0% in 2019 and 9.0% in 2020. Prices in Perth, Adelaide, and Brisbane are expected to increase by 2.0-6.5%, but drop 4.5% in 2023.