Researchers have predicted a 5.2 per cent fall in property prices in 2022-23, with low net migration and greater housing supply tipped to stifle price rises.
IBISWorld, which offers in-depth industry research and analysis to clients around the globe, said homeowners and investors were expected to face “weak house price performance in the medium-term”, as well as an increase in “month-to-month volatility in the next 12 months”.
IBISWorld Senior Industry analyst Matthew Reeves said some local housing markets had already displayed signs of price declines, with CoreLogic data showing some inner Sydney suburbs had fallen by as much as 9.2 per cent in the three months to the end of February.
The research firm said the shift marked the start of a period of volatility that would lead to a 5.2 per cent drop in housing prices in 2022-23.
“Greater global economic uncertainty and the damage to investor confidence caused by the Russia-Ukraine conflict is expected to constrain demand, weakening housing prices,” Mr Reeves said.
Mr Reeves said while immigration levels were expected to rise from pandemic-induced lows the Federal Government had reduced the yearly permanent migration cap down from 190,000 to 160,000 in 2020-21 and this move would likely place downward pressure on migration rates, constraining demand and limiting growth in house prices.
Combined with weakening demand and a greater supply in completed projects, such conditions are tipped to drive an even greater price decline in 2023-24.
Mr Reeves tipped prices would recover slightly in 2024-25, equating to an average annual fall in property prices of 1.1 per cent across the five years through 2026-27.
“The negative outlook for house prices has been driven by a wide range of factors,” Mr Reeves said.
“These include monetary policy, the effect of the COVID-19 pandemic, a loss of consumer and investor confidence as a result of the Russia-Ukraine conflict, and a hangover from the escalating house prices in recent years.”
Mr Reeves said while the Reserve Bank of Australia had insisted it would not raise interest rates until inflation was sustainably within its 2 per cent to 3 per cent target range, international conditions could influence a move.
He said in March the Federal Reserve in the US increased rates 0.25 percentage points to 1 per cent and a further six rate rises are tipped this year.
In New Zealand and the UK central banks have also lifted rates.
“Pressure from other overseas reserve banks may prompt the RBA to raise the cash rate in 2021-22, but certainly in 2022-23,” Mr Reeves said.
IBISWorld said it expected the Australian cash rate to rise at an average 0.27 percentage points annually, to 1.45 per cent in 2026-27.
Banks are tipped to pass this on to consumers, with higher lending rates forecast to weigh negatively on demand for property.