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Home prices to fall 5 per cent by end of the year

Rising interest rates could see property prices drop by up to 5 per cent between now and the end of the year, according to a new report.

The PropTrack Property Market Outlook July 2022 Report said interest rates rising faster than anticipated would continue to put pressure on property prices for the remainder of 2022 and into 2023.

According to the report, property prices are set to fall between 2 per cent and 5 per cent nationally by the end of December and then between 7 per cent and 10 per cent in 2023.

This could potentially bring prices down 15 per cent from current levels.

PropTrack Director of Economic Research and report author, Cameron Kusher, said Australia’s housing market had changed significantly over the past six months.

“While there were already some signs that the rate of price growth was slowing at the beginning of this year, we were not expecting interest rates to rise until early 2023,” Mr Kusher said.

“There’s since been an outbreak of inflation, resulting in the Reserve Bank (RBA) lifting rates in each of the three months to July 2022.

“This has taken the cash rate from 0.1 per cent to 1.35 per cent and further rate increases are anticipated.”

Mr Kusher said he expected the cash rate to rise to between 2.5 per cent and 3 per cent, with some further increases in early 2023.

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

According to the report, the most expensive cities, Sydney and Melbourne, are tipped to lead the falls, with prices declining between 3 per cent and 6 per cent this year and 9 per cent to 12 per cent in 2023.

The capitals expected to see prices hold up the strongest are Adelaide and Perth, with both expected to see between 2 per cent and 5 per cent growth by the end of this year.

Next year, Perth may see growth of up to 1 per cent, but Adelaide prices are expected to fall between 3 per cent and 6 per cent.

“Prices have already slipped lower than their recent peaks in Sydney (down 1.5 per cent), Melbourne (down 1.8 per cent), Brisbane (down 0.1 per cent), Darwin (down 0.6 per cent), and Canberra (down 0.5 per cent), while the rate of growth continues to slow elsewhere,” 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.”

Brisbane will see a relatively small change in prices by the end of this year, down as much as one per cent, while Mr Kusher expects prices will drop between 6 per cent and 9 per cent in 2023.

While, Hobart ( down 1 per cent to 4 per cent), Canberra ( down 3 per cent to 6 per cent) and Darwin (0 per cent to down 3 per cent) will all see relatively small falls over the remainder of the year.

Hobart and Canberra are expected to see 7 per cent to 10 per cent declines next year, with Darwin tipped to see a 4 per cent to 7 per cent fall.

Mr Kusher said even the strong performing regional locations were likely to experience price falls.

“Demand for regional properties is also likely to slow and given prices have seen stronger growth in these areas than within the capital cities, we expect to see price falls in these markets too,” he said.

“Though, home prices have grown at an exceptional pace over the last two years, rising 34 per cent since the pandemic onset in February 2020.

“Even with a 15 per cent fall by the end of next year, home prices will still be well above pre-pandemic levels.”

Over the 12 months to June 2022, national property prices increased by 11.5 per cent, which was down from an annual increase of 23.2 per cent six months earlier.

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Rowan Crosby

Rowan Crosby is a senior journalist at Elite Agent specialising in finance and real estate.