Australia’s real estate market begins to cool with house prices forecast to fall by 12%
There are further signs that Australia’s overheated housing market is starting to calm down, with demand for mortgages, especially from first-time buyers, remaining on the decline in October.
As another drag, the Organization for Economic Co-operation and Development has also warned that the Reserve Bank of Australia may have to raise interest rates earlier than expected amid rising inflation.
Home loans fell 2.5% in October to just under $ 29.6 billion, the Australian Bureau of Statistics said Thursday.
Homeowner loans fell 4.1%, while first-time home mortgages fell 3.8%, the ninth consecutive monthly decline to 16% lower than a year earlier.
Home loans fell 2.5% in October to just under $ 29.6 billion, the Australian Bureau of Statistics said on Thursday (pictured, potential buyers in Strathfield, Sydney)
“Conditions are clearly moderating in the housing market,” said EY senior economist Johnathan McMenamin.
Commonwealth Bank Forecasts For Home Prices
SYDNEY: 2021 (up 27%); 2022: (6% increase); 2023 (12% decrease)
MELBOURNE: 2021 (up 17%); 2022 (8% increase); 2023 (down 10%)
CANBERRA: 2021 (up 26%); 2022 (up 7%); 2023 (down 10%)
BRISBANE: 2021 (up 26%); 2022 (up 9%); 2023 (down 8%)
ADELAIDE: 2021 (22% increase); 2022 (up 6%); 2023 (down 8%)
PERTH: 2021 (13% increase); 2022 (3% increase); 2023 (9% decrease)
HOBART: 2021 (up 29%); 2022 (up 5%); 2023 (12% decrease)
DARWIN: 2021 (up 17%); 2022 (up 7%); 2023 (down 8%)
Source: Commonwealth Bank of Australia forecasts for dwellings or houses and units together
âInventories in the market are increasing, price increases are slowing, fixed-rate mortgage rates are rising, and the affordability constraints – especially for first-time buyers – are really tough. “
However, investors are filling part of the void, with lending rising 1.1% in October – the 12th consecutive monthly increase – and to $ 9.1 billion for the month was close to the record set in April 2015.
It comes as Australia’s largest mortgage lender expects house prices to drop 12% shortly after official interest rates rise.
The Commonwealth Bank is forecasting double-digit drops in Sydney, Melbourne, Canberra and Hobart in 2023, after strong gains since late 2020.
Philip Lowe, the governor of the Reserve Bank of Australia, now indicates that the cash rate will be raised from a record low of 0.1% in 2023 instead of 2024 as previously promised.
But Commonwealth Bank Australian Economic Director Gareth Aird predicts that interest rates will now be hiked in November 2022, marking the first cash rate hike in 12 years.
âThe Australian real estate market is in the twilight of an incredible boom that has been fueled by record mortgage rates,â Mr. Aird said.
He now predicts that the Reserve Bank will raise the cash rate to 1.25% by September 2023, an unprecedented level since mid-2019, which “is at the heart of our expectation of a contraction in house prices. “.
At the same time, the OECD, in its latest economic outlook, said the RBA should be vigilant for signs of rising inflation, predicting core inflation could reach 2.4% in 2022.
“(She) may have to tighten her policy faster than she anticipated,” the Paris-based institution said.
The RBA doesn’t expect inflation to hit the middle of its 2-3% inflation target until 2023, and still believes it may have to wait until 2024 before raising the policy rate.
The Reserve Bank of Australia doesn’t expect inflation to hit the middle of its 2-3% inflation target until 2023 (pictured, an auctioneer in Sydney)
Homeowner loans fell 4.1%, while first-time home mortgage loans fell 3.8%, the ninth consecutive monthly decline, down 16% from a year earlier ( photo, an auction in Strathfield, Sydney)
The OECD expects Australia’s economy to grow 3.8% annually in 2021 and 4.1% in 2022.
The latest national accounts released on Wednesday showed the economy contracted 1.9% in the September quarter due to recent COVID-19 lockdowns, but the annual rate was 3.9%.
The quarterly contraction of 1.9% was the third largest since the introduction of national accounts in 1959, although it was smaller than economists feared.
Treasurer Josh Frydenberg is confident about the outlook, with jobs and retail spending having since rebounded and corporate investment intentions particularly strong.
âI look forward to a strong Christmas and a very strong New Year,â Mr. Frydenberg told ABC Radio.
Ghost Treasurer Jim Chalmers is also hoping for a recovery.
“But we cannot be complacent about this because the government has already bragged about a recovery and instead delivered some pretty horrific numbers (Wednesday) in the national accounts,” he told ABC TV.
Treasurer Josh Frydenberg says he’s confident about the outlook, with jobs and retail spending having since rebounded (pictured, Melbourne CBD)
Meanwhile, ABS also said Australia’s trade balance shrank to $ 11.2 billion in October, from $ 11.8 billion the month before.
Exports fell 3% due to falling prices for iron ore.
Westpac Senior Economist Andrew Hanlan noted that the price of iron ore fell from a high of around US $ 210 per tonne in June and July to US $ 120 per tonne in October and has fallen since then .
Imports also fell by 3% due to lower demand for capital goods.
“This weakness in imports will only be temporary as domestic demand is expected to recover as NSW and Victoria emerge from the Delta blockages,” Hanlan said.