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Housing market to fall by 20%

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With interest rates rising faster than expected, Australian house prices could plummet by 15% by the end of next year, with Sydney’s housing market tipped to drop more than other capital cities, ANZ has predicted.

The major bank previously forecasted a 3% drop in national house prices for 2022 and 8% for 2023 back in mid-May, but is now expecting a 5% fall by year’s end and another 10% drop in 2023, which would leave prices around 6% higher than pre-pandemic levels.

ANZ’s updated forecast came after it revised its forecasts on the RBA’s cash rate trajectory last week, with the bank now expecting to see the cash rate hit 2.35% by November and 3% in late 2023 or early 2024, Yahoo reported.

Sydney’s housing market is expected to see the biggest drop, with ANZ forecasting up to a 20% decline in the city’s house prices by the end of 2023. Canberra’s housing market was tipped to fall by 15% within two years, with the bulk of the drop-off expected in 2023, while Melbourne was also likely to drop by around 15%. Adelaide’s market was also expected to decline by some 15%, but not until 2023.

ANZ economists Felicity Emmett and Adelaide Timbrell said fast-rising mortgage rates would shrink borrowing capacity fast, which in turn would “weigh heavily” on house prices, hence the downgraded forecast.

“The increase in mortgage rates is now expected to be larger and to come at a more rapid pace,” Emmett and Timbrell said.

The two ANZ economists expected lower borrowing capacity, not forced sell-offs, to be the main culprit behind plummeting house prices as the average borrower had a generous savings buffer.

While ANZ now expected the property market to see bigger declines, Emmett and Timbrell said the decline would hopefully be moderated by increased immigration and a few other factors.

“Stronger household income growth, large savings buffers, increasing population growth via immigration and continued economic growth will all cushion the fall in housing prices as interest rates increase,” the pair told Yahoo.

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