Key points
- Interest rates will have a bigger impact on house prices than any new policies, economists say.
- Prices will fall by between 8 per cent and 10 per cent next year, according to the predictions.
- Policies like the Help to Buy scheme will only have a modest impact.
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Australia’s downward house price trend will not change despite a new federal Labor government being elected on the weekend, experts say.
Economists are predicting the property market will continue to soften despite new policies aimed at helping first home buyers, single parents and low-income earners get into the market sooner and a promise of 30,000 extra social and affordable homes.
Economists say Australia’s property market downturn will continue despite a new Labor Government.Credit:Rob Homer
CBA senior economist Gareth Aird said the policies won’t be enough to soften the impact of rising interest rates and the rising cost of living on Australian households.
“Regardless of who won the election, rising interest rates will be the one thing that shapes economic outcomes and the future of the housing market,” Aird said.
Sydney and Melbourne’s house prices had already passed their peak, with the harbour city’s prices flattening in the first quarter of 2022 and Melbourne’s down by 0.7 per cent, according to Domain.
Aird said the rest of the country is expected to follow suit, as the Reserve Bank of Australia continued to hike interest rates.
Rising interest rates will be the one thing that shapes economic outcomes and the future of the housing market, according to Gareth Aird.Credit:Louie Douvis
CBA is predicting prices nationally will flat line by the end of the year and drop by 8 per cent in 2023.
Aird said policies like those on offer from both the Coalition (First Home Guarantee) and Labor (Help to Buy) had a bigger impact in an upward market than in a downturn.
“The Coalition and now the new government would have had more of an impact with their policies in a rising market because they are demand-driven schemes,” he said.
He added that without FOMO (fear of missing out), buyers were more cautious of entering the market, even if these policies were on offer.
Rising interest rates and lower house prices mean buyers will be less likely to get into the market, economists say. Credit:Peter Rae.
AMP Capital chief economist Shane Oliver agreed the impact would be marginal, given it would take time for new social and affordable housing to be added to the market.
The Labor Government’s agreement to continue to fund the Coalition’s Home Guarantee Scheme, which would equate to 60,000 places in the next financial year, was still a drop in the ocean.
“The numbers are relatively small and rising interest rates have already had a significant impact on Sydney and Melbourne,” Oliver said. “This won’t be enough to impact the slump in prices.”
AMP updated predictions off the back of recent house price data, saying Australia should expect a 10 to 15 per cent drop in house prices over the next 18 months, rather than 2 years.
Economists at Australia’s big four banks believe interest rate rises will have a bigger impact than any new policies introduced by the new government.Credit:Ryan Stuart
Westpac senior economist Matthew Hassan said new policies would take some time to come into effect, meaning their impact, if any, wouldn’t be seen for months, if not years.
Westpac has forecast a price fall of 2 per cent across the country by the end of the year, and a further 8 per cent in 2023, and is not changing its stance.
“Housing and housing affordability was definitely a big topic in this election, but the measures that have been put forward aren’t really going to shift the dial for most people,” Hassan said.
“A correction in house prices does eventually ease some of these affordability issues … but with interest rates rising, servicing the loan becomes more of a problem.”
ANZ senior economist Felicity Emmett said a forecast updated last week, to house prices falling nationally by 3 per cent by the end of the year and 8 per cent next year, remains unchanged.
Economists had already considered a change of government when making their updated prediction last week, Emmett said.
“The Labor government’s policy will obviously help some first home buyers get into the market, but it’s relatively limited … These policies that lift demand do tend to lift house prices, but that impact is likely to be relatively small,” she said.
While the Help to Buy scheme would help people into the market, she said even this would take some time to get the monetary infrastructure into place before it can begin.
“Higher interest rates are going to be the biggest challenge for the market but record-low unemployment and the reopening of international borders – these things will help to provide some support over the next couple of years.”
Meanwhile, NAB was a little more upbeat about the property market this year, believing prices would rise by 2 per cent, before falling by 10 per cent next year.
“We’re not changing our forecasts at all,” NAB chief economist Alan Oster said. “My long and short of it is that it’s [the new government] is not going to make any difference.
“Affordability, interest rates and people getting worried about interest rates will have an impact,” he said.
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