Vivek Maishra

BENGALURU, (Reuters) – Australia’s soaring housing price inflation rate is expected to fall next year, and again in 2023. However, prices in Australia, one of the most hot property markets worldwide, are likely to continue rising, a Reuters poll found.

The Reserve Bank of Australia responded to the economic slowdown caused by the pandemic and cut interest rates to an all-time low. They also flooded the system with cash, a powerful stimulus to an already booming housing market that has seen prices nearly double since 2007-09’s global financial crisis.

Although the boom in property has brought significant financial benefits to existing homeowners, it also makes housing more expensive. It has widen the gap between those with large home equity and those who struggle to make a down payment to purchase a property.

The record-low mortgage rates have fueled an extraordinary boom in Australian housing. “The phenomenal rise in property prices isn’t over, as dwelling prices continue to climb briskly across most major capital cities,” stated Gareth Aird of CBA’s Australian economics.

After surging 18.0%, the average home price growth was projected to fall to 6.0% next years according to a Reuters poll of 11 property experts. These estimates were mostly unchanged in August’s poll.

However, the rapid pace at which house prices rose was predicted to drop to 2.0% in 2023-2024. This is roughly equivalent to core inflation.

Four experts predicted that 2023 would see a drop in house prices, with the range of -2.5% to 10.0%.

We expect a gradual correction of home prices in the range of 10% to 15% by 2023. “The extent that prices fall will be largely dependent on how fast and large the RBA raises the cash rate,” Aird of the CBA said.

When asked what they thought would most affect house prices in the next year, six property market analysts answered that it was higher interest rates and tighter monetary policies. Other factors that could impact house prices next year include supply restrictions, less immigration, and macro-economic policies.

Answering a question about how much interest rate increases would slow down housing market activity, eight analysts gave their predictions of between 100 and 400 basis points.

Marcel Thieliant of Capital Economics stated that “if the RBA increased rates by nearly 200bp like the financial markets anticipated until recently, households would have a huge debt servicing burden and housing would be more affordable than ever since the global economic crisis.”

This would slow down the recovery of consumption, and it could be a significant headwind for the housing market.”

The RBA’s cash rate is not set to rise from a record low of 0.10% until 2023 according to the latest Reuters poll https://www.reuters.com/article/australia-economy-rates-idUSL4N2RN1DH of economists.

The rising cost of homes is making it more difficult for first-time homeowners to afford them. It would get worse for six of the nine analysts that answered questions about affordability in the next two to three years. It would get better, according to the three remaining analysts.

Adelaide Timbrell is senior economist at ANZ.

These negatives will likely more than compensate for the positive of a return in immigration to 2022.