Will Average House Prices Fall over The Next 18 Months?

Boogerman on 11/04/2022 - 09:43

Will Average House Prices Fall over The Next 18 Months?

Borrowers should brace for a 15 per cent fall in home prices as interest rates rise, warns RBA
"Estimates using a model of the housing market that takes into account historical relationships between interest rates and both demand and supply factors suggest that a 200-basis-point increase in interest rates from current levels would lower real housing prices by around 15 per cent over a two-year period," the FSR noted.
https://www.abc.net.au/news/2022-04-08/reserve-bank-financia…

Why Aussie house prices will fall circa 20% when the RBA hikes interest rates
When you write about bricks and mortar, it inevitably attracts a lot of hyperbolic attention: you tend to be typecast as a preternatural 'bull' or 'bear'. To be clear, we are neither: our task is to simply try to accurately anticipate what will unfold. After explaining that Aussie house prices would have to correct by 15% to 25% if—-heaven forbid—-the RBA ever lifted its target cash rate by 100 basis points or more, some readers responded that they had never seen us predict price falls before….
…Assuming rates increase relatively promptly over, say, a 12 month period, we would expect national home values to decline by 15% to 25%. It is possible that the adjustment is smaller if the RBA moves more slowly and the value of residential real estate mean-reverts partly via household income growth over the effluxion of time. But our central case would be a circa 20 per cent decline after the first 100 basis points of hikes.
https://www.livewiremarkets.com/wires/why-aussie-house-price…

Financial market consensus (happy to link proof), including every single one of the big four banks, is for the first central bank interest rate rise to occur in the first week of June (not May because of the election, for fear of appearance of impropriety, which is a BS reason personally)

I'm interested to hear what people's opinions are & if the awareness of pending interest rate rises causes house prices to fall PRIOR to the actual rise (& hence the actual hit to mortgage repayments). FYI, fixed term interest rates by retail banks have already been increased.

Poll Options

  • 23
    Yes less than 5%
  • 47
    Yes 5 to 10%
  • 22
    Yes 10 to 15%
  • 123
    Yes Over 15%
  • 96
    No they will remain flat
  • 24
    No they will rise under 5%
  • 280
    No they will rise more than 5%
Financial

Comments

  • Xistn on 11/04/2022 - 09:47
    +55

    Shakes 8 Ball

    • Quantumcat on 11/04/2022 - 10:05
      +10

      Reply hazy, try again

    • ntt on 12/04/2022 - 00:11
      +4

      Scratch 8 balls

    • Wiede on 13/04/2022 - 13:32

      Can't afford to buy one of those now, inflation and all

  • poboy on 11/04/2022 - 09:53
    +24

    At the end of 2019, the papers quoted many buying agents that were recommending their clients sold now before further price drops.

    I recommend asking these same people what will happen this time.

    • TheBooleanOne on 11/04/2022 - 10:31
      +16

      A broken clock is right twice a day still

      • Wiede on 13/04/2022 - 13:33
        +1

        Tell that to my dead smartwatch,

    • Boogerman on 11/04/2022 - 10:33

      Such simplistic logic & also the laziness of hindsight.
      That there was a 1 in 100 year worldwide pandemic with associated central bank money printing & government handout$ doesn't matter for the narrative of "I know better than a guy with a PhD in Economics"
      Ugh.

      • ThithLord on 11/04/2022 - 11:32
        +23

        The LNP did this, completely and with gusto. They:

        1. Halved the capital gains tax, then
        2. the "Independent" Reserve Bank of Australia, full of "Independent" Liberal Party hacks on the board cut the interest rate three times…. eventually having cut the rate 6x in a span of 18 freaking months, then
        3. Loosened restrictions on Property developers even more.
        • Chandler on 11/04/2022 - 11:42
          +11

          You forgot literally printing money quantitative easing.

          • ThithLord on 11/04/2022 - 13:04

            @Chandler: Sure, but, is that the reason housing prices of gone skitzo?

            • mdavant on 12/04/2022 - 11:00
              +2

              @ThithLord: the banks got access to cheap money from the go nuts so they could sucker in more lemmings

              • ThithLord on 12/04/2022 - 11:05
                +1

                @mdavant:

                could sucker in more lemmings

                Categorically and emphatically yep.

  • GG57 on 11/04/2022 - 09:58
    +2

    The prices of houses will be determined by the market forces. Buyers and sellers.

    • Jason Genova on 11/04/2022 - 10:51
      +10

      in australia, prices are controlled by the government

    • Drakesy on 11/04/2022 - 13:13
      +27

      The Australian real estate market was no longer a free market the day they introduced negative gearing

      • nsonha on 13/04/2022 - 23:44
        +2

        I hate to break it to you but negative gearing is not an Australian invention, it's just a simple concept that the idiots can understand, along side with "Chinese buying up all the properties". Tax credits for property investor (or any kind of investor really) is a market mechanism that has a function). If housing supply surpasses demand, no negative gearing could ever help house prices. The problem is single core cities and zoning that limits supply.

        • Drakesy on 13/04/2022 - 23:46

          I never said it was an Australian invention?

          • nsonha on 13/04/2022 - 23:49

            @Drakesy: you said it like it's a new or unique thing somehow. Many countries in the world have it, but their house prices are not crazy like ours.

            • Drakesy on 13/04/2022 - 23:52

              @nsonha: Its been around since 1985 and yes it did work increasing rental market supply. But now taxpayers are footing the bill for people to gamble and speculate on property.

              Also many countries have outlawed it because they realised how warped the market became.
              But its not the be all and end all, part of the problem is literally the supply of cheap debt. Luckily inflation will put an end to that.

    • DashCam AKA Rolts on 11/04/2022 - 16:41
      +15

      The prices of houses will be determined by the market forces. Buyers and sellers.

      This is why Canada has just placed a moratorium on foreign purchasers buying residential properties.

      • GG57 on 11/04/2022 - 16:48

        This is reasonably widespread around the world; different countries have different limitations.

        In Australia, foreign residents wanting to buy investment properties require FIRB approvals.

        • ZenderBing on 11/04/2022 - 17:24
          +13

          but they still buy through their proxies (relatives)

          • GG57 on 12/04/2022 - 11:38
            -1

            @ZenderBing: Probably.
            I've done that myself, but the property was not in Australia. Had a relative 'buy' it and it remained in their name. I just paid for it.

        • nsonha on 13/04/2022 - 23:47

          that's not it, FIRB approvals are easy to acquire. They are still hit with heavier taxes than permanent residents. Arguably, the tax should be even higher though.

      • franz87 on 13/04/2022 - 00:08
        +3

        Easier to blame 'foreign' investors than to accept it is actually the local investors (i.e. greedy cashed up gen x and boomer "mum and pop investors") who've caused this madness. Unfettered greed is the madness.

        • MarsTitan on 13/04/2022 - 01:00
          +1

          Bonus point for guessing which foreign nationals buy the most houses in Australia.

          Hint: It is a major super power

        • rektrading on 13/04/2022 - 09:50

          60 seconds that gets my 🌅 going.

          https://youtu.be/6bbzwJ0Sx48

        • [Deactivated] on 13/04/2022 - 10:34
          +1

          During Covid when prices were actually amazing, I found 2 types of people.

          Young couples(Mostly Asian), but also alot 55-70 year olds.
          Sometimes parents with their daughters.

          I remember going to house after house, I was the only mid 30s single ever.

          I must of gone to 100+ opens, the best time to buy. Some of the homes I looked at are 500-700k more now.

          It's mental.

          • nsonha on 13/04/2022 - 23:53
            +1

            @[Deactivated]: where are you? Funny. I went to many places in Melbourne with me being the only one or one of the 2 asian guys, there are non-asian parents with their non-asian adult children.

          • Lunarboogie on 14/04/2022 - 12:37
            +1

            @[Deactivated]: What does their ethnicity have to do with it? Besides, they were Asian-Australians (like many of us) which makes us as Australian as anybody else.

    • Vote for Pedro on 11/04/2022 - 23:54

      And government policy.

    • iDroid on 13/04/2022 - 11:37
      +1

      It would seem that market forces are strongly influenced by the availability of cheap money (ie, low interest rates pushing up borrower's purchasing power)

  • Hithere on 11/04/2022 - 09:59
    +3

    In some areas Yes, in other areas No.

    • YTW on 12/04/2022 - 15:50
      +7

      Here it is. The correct answer. In other words..

      Q: Is the market going to go up or down?
      A: Yes.

  • jellykingdom on 11/04/2022 - 09:59
    +1

    Do you know how much 200 basis points is? In 2 years?? That is an enormous increase. I like to think that the RBA would show some manner of restraint. Half the population (at least in Syd/Melb/Perth) are indebted up to their eyeballs in property, and I doubt there is much of an economic benefit to bankrupting all of those people and tanking the economy. Consumer confidence would be wrecked, noone would have any disposable income, and by extension you'd destroy tourism and hospitality industries (even more than they already have been)…

    Also also, people have been saying prices will crash for the last 10yrs now. I'm certainly not expecting they would keep going nuts like they did, but it is not in powerful people's interest to let them fall. Remember in 2020 when the prediction was for a 50% DROP in house prices in Syd/Melb? They gently dropped maybe 5% and settled, then people got brave again and came back in

    • AustriaBargain on 11/04/2022 - 10:34
      +18

      If house prices plummet then renters will have a lot more disposable income. And investment property owners indebted to their eyeballs will learn a valuable lesson about not borrowing beyond their means.

      • jellykingdom on 11/04/2022 - 10:39
        +9

        Why would house prices have a direct impact on renters…? The changing house price (if you don't sell) isn't really related to mortgage repayments, so the landlord won't reduce the rent

        • AustriaBargain on 11/04/2022 - 10:43
          +6

          If landlords can't pay their mortgages, because they are indebted up to their eyeballs, they will need to sell their houses at market value. And then they will be rented out at market value. Houses are only worth what renters pay for them, and if house prices drop then that means rent values have dropped.

          • Ghost47 on 11/04/2022 - 12:28
            +8

            @AustriaBargain:

            1. Landlords are pretty simple people IMO (I mean some landlords think negative gearing is a good idea lmao, that just shows you how “smart” these people are) and would probably sell one of their eyeballs, testicles or half their penis before selling their house for a lower price.
            2. These simpleton landlords are just going to raise rents if their repayments increase. We can see rents going up already as landlords scramble to counter any rate rises.
            3. Renters who can’t move back in with family or live with friends or whatever will likely be forced to pay higher rents or end up on the street. Landlords will be the ones actually making people homeless lol.

            We’re in a terrible situation borne out of stupidity, greed and no consideration of the future.

            • duchy on 11/04/2022 - 12:51
              -1

              @Ghost47: Let me guess - you don't like landlords, right?

              Private investors provide over 90% of rental properties in Australia. The rest is public housing paid from our taxes.

              If the costs increase (rates, no negative gearing or interest) the rents will inevitably go up as well. The amount of rental housing is currently very low. I am talking 0.x % in Brisbane, Moreton Bay and many many regional cities.

              I would say that people willing to invest anywhere (stocks, crypto, real estate) shouldn't be shunned in Australia, but celebrated for they are willing to be responsible for their own future. I don't think these people are stupid at all.

              • rektrading on 11/04/2022 - 13:03

                @duchy: How dare people risk their capital to improve their financial freedom.

              • Ghost47 on 11/04/2022 - 13:16
                +10

                @duchy: People who invest in stocks don’t take something away from others. Property investors frequently elbow out FHBs at auctions. There’s a difference between getting ahead to secure your future, and stepping on others to do so.

                • rektrading on 11/04/2022 - 13:21
                  +1

                  @Ghost47: A transaction is between two parties. Both parties have to agree to the fair value of the asset.

                  Nobody is stepping on each other.

                  It's a win-win.

                  • Ghost47 on 11/04/2022 - 13:52
                    +11

                    @rektrading: I’m not talking about the nature of what a transaction is.

                    When a investor outbids a FHB at auction to buy their 8th investment property when the FHB wants one to live in, that is called elbowing out the little guy.

                    • GG57 on 11/04/2022 - 14:09

                      @Ghost47: If it is the buyer's 8th investment property, I'm betting they are running those investments as a business. Most likely positively geared. Paying tax on the profits made.

                      • Ghost47 on 11/04/2022 - 14:14
                        +7

                        @GG57: Ok. I don’t see how that’s relevant to whether or not they elbowed out a FHB to buy their 8th property, which is the point I’m making.

                    • rektrading on 11/04/2022 - 14:28
                      +1

                      @Ghost47: People with multiple IP compete for credit like just FHB. The more leverage they take on the more they'll get rekt when the market deleverages.

                      FHB can pick up the property when that happens.

                • cadwalader on 12/04/2022 - 20:22
                  -3

                  @Ghost47: Such heartless property owners to sell to the highest bidder instead of to the FHB. /S

            • AustriaBargain on 11/04/2022 - 13:35
              +2

              @Ghost47: Ah it's so obvious now that you explained it, we need to increase the prices of property for landlords in order to protect tenants from rent increases. Duh, it's so simple.

          • FlyingMiffy on 11/04/2022 - 23:23

            @AustriaBargain: They will increase rent first before they sell…

            • AustriaBargain on 12/04/2022 - 09:32

              @FlyingMiffy: And the tenant will just move into one of the other many houses that are now worth a lot less, rather than renew their lease.

              • gromit on 12/04/2022 - 16:17

                @AustriaBargain: and where is all this magical new supply of rental properties that they can move into going to come from in a market with extreme rental shortages in most areas?

                • AustriaBargain on 12/04/2022 - 16:40

                  @gromit: Do you think landlords, or the new landlords that buy the houses from the previous owners who had to sell because they were indebted to their eyeballs, will just leave the houses empty? Why would they do this, to spite renters? The entire point of buy to let is letting out the property to make money. If land values and rents fall then houses won't just sit empty, that'd be like landlords cutting off their noses to spite their face. They will rent them out at market value.

                  • gromit on 12/04/2022 - 17:08
                    +1

                    @AustriaBargain: You are conveniently ignoring a core issue of lack of rental properties. Rents simply can't drop significantly while property availability is so low, an investor selling a rental property does not free up more stock it just changes the name on the deed.

          • redfox1200 on 12/04/2022 - 13:16
            +2

            @AustriaBargain: I think you will find rents will increase not decrease, as the property owners would have to find a rental to move into before selling, or kick out the renter of the investment property for the person buying the home.

            With rental vacancy of 1% it's already almost impossible to find somewhere to rent.

            • AustriaBargain on 12/04/2022 - 13:47

              @redfox1200: Then we had better hope land values keep going up and up and up, in order to protect renters!

          • cannedhams on 12/04/2022 - 22:58
            +2

            @AustriaBargain: House prices decoupled from rents a long time ago. If a landlord sells to an owner occupier, it removes both a rental property and a renter from the market, so the overall impact is fairly neutral.

    • Jason Genova on 11/04/2022 - 10:52
      +4

      im guessing youre a home owner who cant handle a 2% rise. just look at what america is gonna do to see what happens in oz

      • jellykingdom on 11/04/2022 - 11:26
        +2

        No, i'm a home owner who doesn't WANT a 2% rise

    • Ghost47 on 11/04/2022 - 12:22
      +5

      Also also, people have been saying prices will crash for the last 10yrs now.

      The past 10 years have seen rate decrease after rate decrease. If rates stay at 0.1% then yeah, prices could keep increasing. But that part of the equation is changing.

      The interesting thing about the drop in prices in 2018/2019 (or whenever it was — the last one is what I’m talking about) is that it didn’t occur due to a rate rise.

      There’s something that’s starting to appear in NZ called INPT “I’m not paying that”. I hope people here cotton onto the fact that spending silly amounts on property like what people have been doing for the better part of the past decade even when rates have been at historic lows is simply not worth the amount of sacrifice one has to make in the future when rates inevitably rise. Imagine all the outings, holidays, experiences etc one will have to forgo just to pay a mortgage.

      People have been assuming rates would never rise, the pandemic had reset those expectations.

      • jellykingdom on 11/04/2022 - 12:47
        +7

        Totally agree with you on the INPT. I am definitely one of those type of people that says "I could have a nice house for reasonable price, or an amazing house for exorbitant money which maybe I would be able to afford but it would impact my standard of living" and i would rather not have to forgo doing whatever I want, whenever I want to do it. My friend has a house (and couple investment places) and now he's got so much debt that he's cancelling coming out for simple $10 activity. It's not worth it!

    • ALesha77 on 11/04/2022 - 14:28
      +1

      If you did not get the message - RBA have already shown a huge amount of restraint to raise rates. I wouldn't go into listing all details but they have done a fair bit of misleading already.
      What would you say about 10% YoY inflation (and remember that this is a cumulative measure so it adds up), underground-low business confidence with businesses going bust left and right, jobless rate over 20% and people literally working for food?

      Higher rates DON'T tank economy, uncertainty does. And we are talking 0.1% interest rate at 3% confirmed inflation - seriously? That is a playbook for disaster when your interest rate does not cover your inflation rate. Do your self a favor and at least google "neutral rate", "central bank mandates" and "inflation impact on economy" - this would really go a long away in your understanding of what you just posted above.

    • serpserpserp on 11/04/2022 - 22:01
      -1

      Remember in 2020 when the prediction was for a 50% DROP in house prices in Syd/Melb?

      What smart noggin said that?

  • Jimothy Wongingtons on 11/04/2022 - 09:59
    +10

    Dr. Hibbert : No.

    Lisa Simpson : No.

    Chief Wiggum : No.

    Marge Simpson : No.

    Bart Simpson : No.

    Selma : No.

    Chief Wiggum : No.

    Ned Flanders : No.

    Selma : No.

    Prof. John Frink : No.

    Reverend Lovejoy : No.

    Chief Wiggum : Yes. I mean, I'm a-I mean, no. No.

    • djones145 on 11/04/2022 - 10:12
      +6

      Ohhh, won't somebody please think of the children!

  • capslock on 11/04/2022 - 10:02
    +8

    RBA has publicly said that they can't increase rates too much because they know a lot of borrowers have borrowed too much and won't be able to afford it.

    • Jason Genova on 11/04/2022 - 10:53

      haha yeh cos a govt controlled entity cares about the people

      • Chandler on 11/04/2022 - 11:44
        +4

        They do care - who do you think owns those houses, and does not want their "value" to decrease?

        • umoddbro on 12/04/2022 - 07:53
          +1

          Nah they do want the value to decrease so they can buy more, rinse and repeat.

    • hasher22 on 11/04/2022 - 21:34
      +5

      And who's fault is it? The lender, the government, or the buyer?

      • [Deactivated] on 11/04/2022 - 23:50
        +9

        all of the above

        • hasher22 on 11/04/2022 - 23:54
          +2

          It's really sad when you really think of it, how it's come to this point.

          • [Deactivated] on 12/04/2022 - 00:17
            +3

            @hasher22: yep. everyone makes the bad decision, thinking that it's not their problem, but they all contribute to the problem.

        • nsonha on 13/04/2022 - 23:58
          +1

          no it's only the government, other parties are expected to act according to their own interests.
          Only the government is supposed to keep them in check.

      • amsaini15 on 12/04/2022 - 07:15

        I would say Govt. They can see markey has started going crazy. They can take quick actions to stabilise it and let price rises be more sustainable. But they don't as they love stamp duty and let it go out of hands.

  • pharkurnell on 11/04/2022 - 10:05
    +9

    I guess its been a week since someone asked this for the eleventybillionth time.

    • MS Paint on 11/04/2022 - 10:42
      +4

      I'm going to ask it next week so prepare yourself now.

      • pharkurnell on 11/04/2022 - 13:15
        +1

        Any deals on Valium going?

  • brendanm on 11/04/2022 - 10:12
    +2

    It's another "boogerman quotes an online paper" post.

    How much did house prices drop in the early 90s, with 17% interest rates?

    • Boogerman on 11/04/2022 - 10:30
      +2

      I wish interest rates were 17%, the dirt cheapness of the house would mean average monthly mortgage repayments were only 20% of income, not 40%

      cogs turning, turning, turning…

      • brendanm on 11/04/2022 - 10:32
        +2

        Yet house prices have never dipped substantially, even through interest rate periods like that, and the gfc recently.

        Surely you realise that even if prices were to drop, the increase in rates would mean you would be paying basically the same mortgage payments anyway? Sure, it would go down eventually, but at the time you'd be in the same position.

        • Boogerman on 11/04/2022 - 10:51
          +2

          In 1990, average house price to income ratio in Sydney was 7.8:1
          Today, average house price to income ratio in Sydney is over 13:1

          FYI, property prices fell in 2004/05, 2007/08, 2011/12 & 2017/18, the last being around 8 to 10% with no interest rate rise
          Haven't yet checked prior to 2000.

          • brendanm on 11/04/2022 - 12:02
            +2

            @Boogerman:

            2007/08

            Fell 3.5%, interest rates had increased a number of times leading up to this, they were about 7%

            2017/18

            Pretty much Sydney/Melbourne only, and the "responsible lending" thing had just been introduced. There is more to house pricing than just interest rates.

            I'll have to check the others later on.

            In 1990, average house price to income ratio in Sydney was 7.8:1
            Today, average house price to income ratio in Sydney is over 13:1

            Yes, affordability is dropping. Perhaps we should stop selling to foreign investors with basically unlimited cash.

            • Boogerman on 11/04/2022 - 12:42

              @brendanm: Not just Sydney/Melbourne fell
              Perth had a massive fall over several years from about 2012 (or was it 2014?)

        • Quantumcat on 11/04/2022 - 11:04

          True, but you will need less deposit

          • brendanm on 11/04/2022 - 12:04

            @Quantumcat: $160,000 instead of $200,000 on a previously $1m property, assuming a 20% drop in value.

            Coupled with the economy basically tanking if house prices drop 20%, especially if due to a rates rise that causes mortgage distress, lots of people won't be in a position to buy.

  • SF3 on 11/04/2022 - 10:27
    +1

    Crystal ball read out… if you believe this stuff…

    Better off flipping a coin.

  • dust on 11/04/2022 - 10:45
    +1

    Depends on the suburb.

  • Archi on 11/04/2022 - 10:46
    +9

    they will fall… but in places you don't want to live, or you cant afford anyway…

    • urahara on 11/04/2022 - 10:52
      +1

      Dont think they will fall even there..

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