‘Sharp moderation’ to see house price growth shrink below 5 per cent in 2022
Property prices are on track to deliver a double-digit rise nationally, but analysts are predicting less than half of this growth next year.
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While property prices are on track to deliver a double-digit price rise nationally, the expected slowdown in the rate of increases has spurred analysts to predict less than half of this growth next year.
The price frenzy over the first four months of the year led to record 30-year monthly gains over the past two months, with the rise of 1.8 per cent in April the third largest hike since 1988. Although a percentage point lower than March growth, ANZ economist Felicity Emmett reiterated the banking giant’s prediction of 15 to 20 per cent growth for the 2021 calendar year.
Citi analysts predict house prices will peak in the third quarter of the year, with a “sharp moderation” in the growth to cause gains over 2022 abate to 1.5 per cent.
“Our forecast for 2022 reflects a sharp moderation in growth, reflecting a change in a number of fundamentals for the housing market,” Citi analysts said in a note.
“We believe an increase in housing supply and limited population growth will act as headwinds for the housing market next year.
“Moreover, with wages growth unlikely to rise meaningfully, and interest rates not expected to move lower, we believe affordability has peaked and it will likely worsen in the coming months.”
Affordability will be the biggest handbrake on gains, particularly first home buyers, said AMP Capital’s chief economist Shane Oliver. He expects average home prices to rise another 10 to 15 per cent through to the end of 2022.
“This (would) mask a slowing from 15 per cent this year (of which they have already done 7.5 per cent) to 5 per cent next year,” Mr Oliver said.
“2023 could start to see another cyclical downturn in property prices as the interest rate cycle starts to move up more decisively.
“The fundamentals of still ultra-low mortgage rates, ongoing government incentives, economic recovery, the strong jobs market and an element of FOMO (buying now for fear of missing out) point to further home price increases ahead.”
CommSec analysts said buyers will ultimately benefit from the slowdown in prices, as others drop out due to affordability constraints and removing some of the purchase urgency.
“New buyers may not be able to afford higher-priced properties, especially if incomes stay stagnant,” a note released on Monday said.
“Some may give up the search while others revise their expectations on the desirable property. Supply responds to the higher demand and this will continue to evolve over the next few quarters.
“While some buyers may experience FOMO (fear of missing out), the good news is that the Reserve Bank is in no rush to lift rates – especially with inflation well contained. So buyers can continue to do their homework to find the right property, especially if new listings lift as expected.”
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Originally published as ‘Sharp moderation’ to see house price growth shrink below 5 per cent in 2022
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