Low stock levels will keep upward pressure on house pricing
Could a reduction in Hobart’s ballooning property prices be on the horizon? Maybe ... but not before more growth.
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HOBART home prices could plunge by 12 per cent in 2023 when the Reserve Bank ramps up interest rates, according to new research from Australia’s largest bank.
However, the market decline won’t arrive before the southernmost capital city experiences 5 per cent more growth in 2022.
A “gradual and shallow” RBA tightening cycle that takes the cash rate from record lows to 1.25 per cent by Q3 2023 lies at the heart of CBA Economics’ expectation that home prices will contract over 2023.
In his report, Commonwealth Bank’s head of Australian economics, Gareth Aird, forecast declines in every city in 2023, with Hobart and Sydney recording the largest percentage falls.
Mr Aird said the Australian housing market was in the twilight of an incredible boom that had been fuelled by record low mortgage rates.
“The phenomenal lift in prices is not over yet given dwelling prices are still rising briskly in most capital cities,” he said.
Other major banks such as ANZ and Westpac have also forecast a decline for the housing sector.
Market analyst and PRD Hobart director Tony Collidge agreed with the prediction of a slower market in 2022 but he believes Hobart will still see positive growth for many reasons.
“Our shortage of new home production, established homes for sale and rental stock will still see strong pressure placed on market levels,” he said.
“The bigger cities – Melbourne, Sydney, Brisbane – don’t have this issue to the degree that Hobart does.
“I can’t see prices continuing to grow at the rate that they have throughout 2021. It has been phenomenal.
“And it will be interesting to observe what happens in our market once the borders open up. “Will we have an influx of people wanting to move here? Or, with the supply shortage of rental and homes for sale, will it just be too difficult?”
REA Group economist Paul Ryan told News Corp he doubts the RBA would increase rates sharply.
“They’re likely to rise slowly, perhaps towards the end of 2023,” he said.
Head of research at Propertyology, Simon Pressley, said it was important to remember that interest rates have not risen yet and even if they do that’s not a reason for property prices to crash.
“The ultimate performance of any property market is the sum of all of the factors, not just one, not media commentary or the metric of the moment,” he said.
“If we wind the clock back to the last federal election, the RBA cash rate then compared to now has reduced by 1.4 per cent in that time.
“Let’s call that six reductions. If we have six increases, that would take us back to exactly where we were in May 2019. Will property markets crash?
“Even if there were 10 increases, finance will still be dirt cheap.”
Mr Collidge said Hobart’s prices – which have grown by 28 per cent annually according to CoreLogic – were well and truly “stretching affordability levels”.
“But people are finding the funds to buy,” he said.
“Our market is still being driven by locals (81.9 per cent of sales) and this will continue in the immediate future.”
While Mr Aird said there was no doubt the housing market had been “red hot”, the recent price outcomes pre-date two key developments that will exert a cooling influence on
the property market.
“First, APRA announced an increase in the minimum interest rate buffer it expects banks to use when assessing the serviceability of home loan applications. More specifically, the minimum interest rate buffer was increased to 3 per cent from 2.5 per cent,” he said.
“Second, a number of lenders have in recent weeks lifted interest rates on fixed rate mortgages in line with higher funding costs and the RBA’s abandonment of its yield curve target. This will have a dampening impact on the demand for credit.”
Originally published as Low stock levels will keep upward pressure on house pricing
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