Australian house prices to plunge 20% by September, expert warns

Australian homeowners should be bracing for a September bloodbath on the housing market where a 20 per cent price plunge is pretty much inevitable.

Australian homeowners should be bracing for a September bloodbath on the housing market, an expert has warned.

Shane Oliver, chief economist at AMP, has predicted that property prices will bottom out in September this year.

Come September, national house prices will have fallen 20 per cent below their peak April 2022.

And not only that, it’s likely that price plunges will “re-accelerate” in the lead up to the September quarter as cash-strapped mortgage holders take to “distressed selling” on the housing market.

“We haven’t yet seen the full impact of interest rates on the housing market,” Mr Oliver told news.com.au.

There’s also a “high risk” of the housing bubble bursting in a bust scenario, although he did point out this was not the most likely scenario.

He explained that three factors will come to a head and reach a “critical mass” which will savage the real estate industry and make a 20 per cent plunge pretty much inevitable.

Aust cap city home prices had their worst yr at least in the last 40 yrs on CoreLogic records
The 8.6% fall in cap city prices has been the fastest in last 40 yrs
The fall in buying power (-27% for a buyer on av earnings w 20% deposit) due to rate hikes points to more falls ahead pic.twitter.com/fEIEtHUbj6

— Shane Oliver (@ShaneOliverAMP) January 4, 2023

By September, a large chunk of Australians with mortgages will have to transition to a variable interest rate as their three-year, much lower fixed rate deals expire.

Mr Oliver estimates this group will represent 30 per cent of the total number of homeowners stuck paying off mortgages in the country.

“We don’t know how those people are going to handle their mortgage reset,” he warned.

“Some would say you need to watch that as you suddenly see a critical mass of people’s loans resetting whereas the variable rate has been more gradual.”

This could cause many to try to sell their houses on quickly faced with paying off a much heftier loan.

Interest rates are likely going to keep rising this year and there’s also a chance an impending global recession could reach Australia, which also won’t impact well on the housing market.

“Rising mortgage rates are the main driver of the slump and there is likely more to go. Since April a buyer on average full-time earnings with a 20 per cent deposit has seen a 27 per cent decline in their home buying power,” Mr Oliver explained.

“We continue to expect a 15 to 20 per cent top to bottom fall in home prices out to the September quarter, as the full impact of rate hikes flows through and as economic conditions slow sharply this year resulting in rising unemployment.

“Reflecting this we see around another nine per cent fall in prices out to around September, with prices falling seven per cent over 2023 as a whole.”

Sydney will be worst hit, followed by Melbourne and Brisbane. Hobart and Canberra are in the same risk bracket.

He said that Adelaide, Darwin and Perth won’t be massively impacted because they haven’t risen as far as the other capitals. Homeowners in those capitals also don’t have as large debts as the rest, making a housing value plunge less devastating for them than elsewhere.

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Shane Oliver says a 20 per cent plunge is pretty much inevitable. Picture: NCA Newswire / Gaye Gerard

Risk of a ‘bust’

Mr Oliver says the 20 per cent plunge is the most likely scenario but warned a property crash was another possibility.

“That risk is there, it’s a high risk but it’s not the most likely scenario,” he said.

If the property bubble was to burst, house prices would lose 30 per cent of their value.

As it stands, average national home prices are down by eight per cent from their high and fell 5.3 per cent in 2022.

That would make the current decline the worst calendar year decline for house prices since 2008.

Average capital city prices have fared worse and are now down by 8.6 per cent and fell 6.9 per cent last year, making them the worst calendar year on CoreLogic records that date back to 1980.

It comes as an expert report released last month from the International Monetary Fund (IMF) found that Australia’s real estate market was hurtling towards a correction which could burst the property bubble.

The research found that Australia has one of the most “misaligned” housing markets in the world, and is among the most unaffordable.

This year, Australian housing prices rose 50 per cent above what the median household can afford, according to the report, as real wages declined because of inflation.

Now the average family is spending 40 per cent of what they make to keep a roof over their heads.