FILE PHOTO: Residential homes can be seen in the inner west suburb of Enmore in Sydney, Australia, July 19, 2015. REUTERS/David Gray/File Photo
By Vivek Mishra and Devayani Sathyan
BENGALURU (Reuters) – Expectations for a 16% fall in Australian home prices from their peak have held steady despite growing expectations over the past few months the Reserve Bank will raise interest rates to a higher peak, a Reuters poll of analysts found.
Last month the central bank abandoned its previous plan to pause at 3.35%, announcing that adding to the 325 basis points it has already delivered from near-zero could be necessary to curb inflation, running at a three-decade high of 7.8%.
Average home prices in Australia, which have nearly doubled since the 2008 financial crisis, have dropped about 9% since April 2022.
They were expected to decline another 9% this year, according to a Feb. 17-March 1 Reuters survey of 11 analysts, broadly unchanged from a poll in November. Analysts predicted a small 2.5% rise in 2024.
However, even with the expected decrease, it will only be a fraction of a 25% surge during the pandemic alone.
Analysts maintained their earlier median forecast of a peak-to-trough fall of 16.0%, unchanged from the November poll. That is more modest than the 22% peak-to-trough predicted drop in New Zealand house prices, which worsened slightly.
“Our forecasts are largely unchanged…(as) very large household savings buffers and ongoing low unemployment at the aggregate level will help households manage higher mortgage repayments,” said Adelaide Timbrell, senior economist at ANZ.
“This assumes the economy avoids recession and unemployment only lifts to the low-to-mid 4s…but this would likely translate into too-strong consumer demand and prompt further rate hikes, extending the tightening cycle and prolonging downward pressure on housing prices.”
In the meantime, many aspiring first-time homebuyers will be forced to continue renting. All seven analysts who answered an additional question said rental affordability in cities would worsen over the next two years, including two who said significantly worsen.
Maree Kilroy, senior economist at Oxford Economics, said returning migrants and students following the worst of the pandemic will add pressure and “should fuel sustained rental growth, especially in Sydney and Melbourne,” adding 2023 is likely to mark the worst point for rent affordability.
(For other stories from the Reuters quarterly housing market polls:)