Property outlook: where home prices are heading

Rising interest rates, more listings and less competition could see property prices fall as much as 15% nationally by 2023¹.

That’s according to new forecasts released by PropTrack, which predict price falls will “broaden and then accelerate” throughout the rest of the year.

PropTrack director of economic research and author of the report, Cameron Kusher, said the falls were expected to be largest in Australia’s most expensive cities.

"Nationally, we are forecasting prices to fall by between 2% and 5% by the end of this year and then by a further 7% to 10% by the end of 2023," Mr Kusher said.

“The recent run-up in prices, coupled with reducing borrowing capacities as interest rates rise, is likely to see price falls broaden and then accelerate further into 2023, with the more expensive cities expected to record the largest price falls.”

Price growth has been slowing in recent months

But after two years of historically strong price growth², property values are still expected to remain higher than pre-pandemic levels.

“Property prices nationally increased by 35.1% since the start of the COVID-19 pandemic in March 2020,” Mr Kusher said.

As of July, the national median property price was $751,000. Across the combined capital cities, the median price is $793,000, and $636,000 in regional areas³.

What’s driving the slowdown

Mr Kusher identified several factors in the slowing market but said rising interest rates were the driving force.

“We weren’t expecting the Reserve Bank to start raising interest rates until early 2023, so while there were some signs that house price growth was slowing at the start of the year, their rapid moves have escalated things,” Mr Kusher said.

The RBA has raised the cash rate from 0.1% to 1.85% since May⁴, and says further interest rate hikes are needed to cool inflation.

Mr Kusher anticipates the cash rate will continue to rise in the months ahead.

​“By the end of this year, we predict the cash rate to rise to between 2.5% and 3%, with some further increases in early 2023,” he said.

“Thereafter, we predict rates to remain on hold with the potential for them to be reduced in late 2023 or early 2024,” Mr Kusher said.

Mr Kusher noted the urgency to buy has eased significantly as many sit on the sidelines and assess the impact of rising interest rates. Higher interest rates also lower borrowing capacities.

“There is more stock available for sale and fewer competing buyers. Furthermore, with prices falling some buyers will feel the longer they wait, the cheaper they may be able to purchase a property for,” he said.

​“While some buyers may choose to wait for prices to reduce, the expectation of higher interest rates as prices fall will reduce people’s borrowing capacity.”

How each state will perform⁵

Adelaide bucked the trend, recording a new price peak in July, although this is expected to be temporary.

2022 / 2023 Calendar year dwelling price forecasts:

Source: PropTrack

Mr Kusher said the price premium between more expensive and more affordable cities was expected to narrow, particularly for Sydney.

“Sydney houses maintain a significant median price premium relative to house prices elsewhere in the country and with Sydney prices now falling, it is reasonable to expect that there may be some reversion to averages over the coming years,” Mr Kusher said.

“We’ve already seen strong migration out of Sydney over the past two years and more homeowners may choose to seek out better value housing outside of Sydney.”

1 https://www.realestate.com.au/insights/proptrack-property-market-outlook-july-2022/
2 https://www.realestate.com.au/insights/if-housing-price-growth-seems-unusually-high-thats-because-it-is/
3 https://www.realestate.com.au/insights/proptrack-home-price-index-july-2022/
4 https://www.rba.gov.au/media-releases/2022/mr-22-21.html
5 https://www.realestate.com.au/insights/proptrack-home-price-index-july-2022/