Economists expect upswing in house prices by 2024

Australian house prices have been cooling off since their peak in April 2022, with a drop between 15–20 per cent forecast by the end of 2023.

ANZ Research’s updated housing forecast predicted a decline from the peak of housing in April this year to the end of 2023, up to 20 per cent, but also indicated that rising wages and some easing in mortgage rates should lead to a 5 per cent increase through 2024.

Senior economist Adelaide Timbrell at ANZ Bank explained the decline in house prices “reflects lower borrowing power”, as compared to a rise in distressed borrowers.

“Over the next 18 months or so, when a borrower seeks a loan, they will be assessed at a higher interest rate than before, and with higher living costs,” Ms Timbrell said.

“That translates to the maximum amount they can borrow being lower – and that means house prices will fall back as people have less to spend.”

The higher cost-of-living pressures, due to rising inflation and interest rates, also feed into how much people can borrow and hence how much they can pay for a house.

“At an auction, for example, bidders will have a lower maximum price they can pay,” Ms Timbrell said.

But given the strong labour market, she said there are “lots of willing buyers” who have jobs and more homes are coming up for sale.

Adding that the increase in homes for sale was not a reflection that people can’t afford their mortgages.

While Australia’s housing market goes through a slight downturn, Domain’s latest analysis showed that historically house prices go through similar large upswings followed by slight declines.

Domain’s latest analysis of Australia’s combined capital house price cycles revealed that in the last 30 years “the duration and steepness of an upswing is longer and greater than a downturn”.

The data found, on average, the duration and price growth tend to be greater for an upswing, seeing house prices rise 32.7 per cent and spanning 2.75 years, meanwhile, downturns have seen house prices decline 3 per cent over 0.75 years.

It also revealed all downturns had an annual decline that peaked at less than 10 per cent, which was “minor relative to the higher rate of incline” that had preceded it.

In comparison, all upswings had an annual increase that peaked above 10 per cent, apart from the pandemic-interrupted upswing of 2019–20.

However, the difference between the current downturn and its predecessor, is that the rising cost of living, alongside rising rates, could mean a “bigger decrease in prices than we have historically seen”, but it was unlikely it would return to a pre-pandemic price, Domain’s chief of research and economics, Dr Nicola Powell said.

“The speed and scale at which prices soften depends on many factors – however, the downturn will be somewhat shaped by how high and quickly interest rates go up, and the height inflation reaches,” Ms Powell said.

But Ms Powell said it was important for Australians to remember that the ups and downs of prices are “illustrative of a healthy property market” – comparing it to the expansion and contraction of an economy.

“If we view property as a longer-term investment, timing the market becomes less important,” Ms Powell said.

[Related: Housing values tipped to sink 15% by 2023 end]