Westpac predicts Sydney and Melbourne home prices to fall by 18 per cent
Westpac has warned Sydney and Melbourne home prices could take a big tumble, and certain factors could make it even worse, amid better news in other cities.
Westpac has warned real estate prices in Australia’s two biggest cities could fall by as much as 18 per cent by the end of 2023.
Matthew Hassan, senior economist at the ‘Big Four’ bank has warned that the situation looks ‘bleak’ in Sydney and Melbourne,
The situation, on the back of recent dramatic spikes in the official interest rate from the RBA, a plunge in consumer sentiment and cost of living concerns is a remarkable turnaround from last year, in which many markets in both metro and regional areas enjoyed stunning growth of around 30 per cent.
Writing in Westpac’s August Housing Pulse report, Hassan said he expects Sydney prices to drop 10 per cent by the end of this year and by 8 per cent in 2023. That would send the media house price down to $1,138,475, from $1,374,970, at the start of this year in the Harbour City.
Conversely in Melbourne, Hassan expects prices to fall by 8 per cent this year and by 10 per cent in 2023.
He expected prices in Hobart’s “extremely unaffordable” market to fall by 14 per cent by the end of 2023.
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He further warned, prices may slip further “especially if we see any loss of confidence around labour markets”.
However that grim picture is not being replicated in South Australia and Western Australian where prices are rising.
In Queensland, after the biggest real estate boom in the state’s history, “prices are just starting to dip”, Hassan wrote.
Likewise in the ACT, which at times over the past two years has boasted the strongest market in Australia.
The price corrction is now “well advanced and firmly entrenched” according to Westpac.
“The housing downturn that began at the start of the year has accelerated and broadened over the last three months, driven by a rapid series of large rate rises from the RBA,” Hassan wrote in the report.
“Markets are now clearly hostage to the tightening cycle. Developments since May point to a more aggressive, front-loaded cycle with the cash rate now expected to rise a further 1.5ppts to 3.35 per centby Feb 2023.
“Risk-wise, signs of easing inflation abroad are balanced against an extremely tight labour market and the potential for a rise in inflation expectations.
“Our revised rate profile means the expected market correction will come through earlier than previously anticipated. Prices nationally are still expected to fall 16 per cent peak to trough.
“While large, the main dynamic in the correction is still expected to be around higher rates reducing borrowing capacity rather than a physical oversupply and/or a wave of distressed sales.
“As such, a prospective policy easing should allow for a modest recovery in prices in 2024.
However Westpac did manage to find a postive in the severe market correction.
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“The state detail continues to show three distinct groups:
1) NSW and Vic and Tas, where corrections are well advanced and firmly entrenched;
2) Qld, ACT and most regional parts of the major eastern states, where prices are just starting to dip; and
3) WA and SA where turnover is still riding high and prices are eking out small gains,” the report continued.
“One positive: declines to date have been proportional to gains in 2020-21. As such, most segments are still sitting on net gains for the cycle.”
Originally published as Westpac predicts Sydney and Melbourne home prices to fall by 18 per cent
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