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House price falls to continue into 2023: NAB

There’s likely more property price declines ahead with values to continue decreasing in 2023, according to the National Australia Bank.

The latest NAB residential property survey found that “broad-based” falls will likely accelerate next year in most capital city markets.

Sydney is expected to bear the brunt of the falls in 2022, with NAB expecting prices to decline 12.9 per cent this year, followed by a smaller 9.4 per cent drop in 2023.

Elsewhere, price declines will likely be more pronounced next year, with Melbourne prices expected to fall 9.1 per cent in 2022, before speeding up to 14.1 per cent in 2023.

Brisbane, which was one of the strongest property markets in the country during the pandemic will also begin to see gains diminish, dropping 0.8 per cent this year and 9.4 per cent in 2023.

Both Perth and Adelaide markets have so far been able to weather the price declines, but NAB forecasts both markets will drop away in 2023, by 13.9 per cent and 16.3 per cent respectively.

Across the combined capital cities, prices are expected to decline 7.3 per cent this year and 11.4 per cent in 2023.

According to NAB, rapidly rising interest rates, and the sharp reduction in borrowing capacity, are the major driver for falls in property prices.

“Indeed, the two capital cities most bound by affordability constraints – Sydney and Melbourne – have fallen the most,” the report said.

“To date, Sydney and Melbourne have led the declines, but prices in other capital cities now appear to have also peaked. 

“And the decline in Brisbane has accelerated.”

NAB said it expects dwelling prices to decline by around 20 per cent across the capital cities from the peak in mid-2022. 

“The declines are expected to be broad-based, but led by areas where affordability constraints are most binding,” the report said.

“More broadly the economy and labour market continue to show resilience but are expected to soften under the impact of higher rates and elevated inflation on household budgets. 

“We expect the RBA to lift rates further in coming months, taking the cash rate to 3.1 per cent before pausing to assess the impact of rate increases to date. 

“While the influence of global factors on inflation is expected to wane, domestic factors will become increasingly important – including faster wage growth.”

Meanwhile, national housing market sentiment fell for the second straight quarter in the third quarter as the downturn in the national housing market gathered speed and spread wider.

Sentiment fell in all states in the third quarter, except Western Australia (+58 pts), but remained highest in the Northern Territory (+75 pts). 

It fell most and turned negative in the ACT (-75 pts) and Tasmania (-25), with NSW (-5 pts) and Victoria (-2 pts) negative for the first time since Q2 20. 

Sentiment also dipped in South Australia (+40) and QLD (+10), but both states, along with WA, were the only areas to report a positive result.

According to NAB, affordability and borrowing power are the most important factors to property buyers.

More than eight in 10 property professionals (82 per cent) surveyed in the latest NAB residential property survey said the amount buyers were prepared to borrow to buy was the biggest factor, up from 74 per cent a year ago before interest rates started rising.

The survey also found that location was just as important as ever, with six in 10 (60 per cent) highlighting good local shopping, restaurants and other amenities as key.

Meanwhile, house size was increasingly important (57 per cent, up from 50 per cent in 2021).

In contrast, fewer highlighted buying a house instead of an apartment (45 per cent, down from 53 per cent), land size (44 per cent, down from 52 per cent), having a work or study area (21 per cent, down from 26 per cent) or being in a regional area (16 per cent, down from 21 per cent) as key considerations.

NAB Executive Home Ownership, Andy Kerr said the market is starting to see a shift as Australians consider affordability in a rising rate environment.

“A trend we are seeing emerge from the pandemic is more Aussies considering apartments over houses for the first time since the survey began, driven by return to office working and caution on borrowing amounts,” Mr Kerr said.

“Affordability and rising interest rates are absolutely part of the equation for home buyers.

“In a rising rate environment, where people are uncertain on when the rising rate cycle will end, Australians are more cautious on what they can afford.

“In terms of being able to pay a loan, it’s important to remember that banks ensure customers can appropriately manage their repayments should interest rates rise.”

Mr Kerr said many Australians are now also changing their housing preferences as affordability starts to bite.

“Australians are also starting to think about what the balance of their working week will look like as we return to the office more often.

“Location is still one of the most critical buying factors and flexible working is here to stay, so where Aussies buy continues to be important.

“We all love walking to our local café or shops and this has continued to be a trend in the survey.”

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Rowan Crosby

Rowan Crosby is a freelance journalist specialising in finance and real estate.