House prices in Australia’s biggest city could fall a staggering $200,000 by the end of next year, the Commonwealth Bank fears.
Sydney‘s median value for a home with a backyard surged by 26 per cent to $1,410,128 in the year to February, CoreLogic data showed.
When apartments were added into the mix, Sydney’s mid-point dwelling price fell for the first time since September 2020.
The Commonwealth Bank, Australia’s biggest home lender, is now predicting a house price drop starting this year in both Sydney and Melbourne, where auction clearance rates have peaked.
House prices in Australia’s biggest city could fall by $200,000 by the end of next year with the Commonwealth Bank now forecasting a slide in 2022 as interest rates rise (pictured is an auction at Paddington last year)
An early interest rate rise in 2022 was tipped to hit Australia’s biggest housing markets first as prices continued to rise in the smaller capital cities.
As recently as November, the Commonwealth Bank was forecasting six per cent growth in Sydney property values in 2022.
But this week the banking giant updated its forecasts to have Sydney’s median home price falling by three per cent in 2022 – followed by another nine per cent in 2023.
RateCity calculated that based on the new Commonwealth Bank forecasts, Sydney’s median house price would fall by $196,442 by the end of 2023.
This would see values dive back to $1,213,686 – the lowest level since May 2021.
The Commonwealth Bank is also expecting Melbourne’s home prices to decline this year, revising a November prediction for an eight per cent rise in 2022.
Its updated forecasts had Melbourne’s median house price dropping by three per cent in 2022 and by nine per cent in 2023.
RateCity said this would see Melbourne’s mid-point house price fall from $998,356 in February to $880,871 by the end of 2023.
The $117,485 drop would see prices back at March 2021 levels.
Melbourne house price growth in 2021 was more subdued than other capital cities, with median values for a home with a backyard growing by 15 per cent.
RateCity research director Sally Tindall said house price growth in Australia’s two biggest cities was already slowing.
‘This could be the beginning of the end for the current property price peak in Australia’s two biggest cities,’ she said.
As recently as November, the banking giant was forecasting six per cent growth in Sydney property values in 2022. But the Commonwealth Bank this week updated its forecasts to have Sydney’s median house price falling by three per cent in 2022 followed by another nine per cent in 2023 (pictured are houses at Kellyville)
RateCity research director Sally Tindall warned borrowers to be aware of negative equity
Ms Tindall said someone buying a property in 2022 needed to brace for negative equity, where they owed the bank more than their home was worth.
‘People might not like the idea of losing equity in their home over the next couple of years, but it’s worth looking at the bigger picture,’ she said.
‘Any property price drops will be coming off the back of monumental gains across the country over the last year and a half, which sent most homeowners’ equity skyrocketing.
‘While falling property prices can be stressful for anyone buying at or near the peak, if they keep their head down and their mortgage repayments up, they should be able to ride out any dips.’
Lenders since November have been required to model a borrower’s ability to cope with a three percentage point increase in mortgage rates.
The banks last year also began raising their fixed mortgage rates, ending the era of 2 per cent interest home loans.
Commonwealth Bank head of Australian economics Gareth Aird said the Sydney and Melbourne housing markets had begun to cool, as buyer sentiment remained strong in Brisbane, Adelaide, Hobart and Canberra.
‘Home price booms cannot go on indefinitely and this cycle looks to have run its course in Sydney and Melbourne,’ he said.
‘Some other markets across the country, however, have a bit further to go in this cycle.’
Brisbane’s median house price rose by 32.8 per cent in the year to February to $828,175.
The Commonwealth Bank is expecting Queensland capital prices to go up by another seven per cent in 2022 but fall by seven per cent in 2023 which RateCity said would see prices fall by $449,045 to $779,130.
Commonwealth Bank head of Australian economics Gareth Aird said the Sydney (house pictured) and Melbourne housing markets had begun to cool, as buyer sentiment remained strong in Brisbane, Adelaide, Hobart and Canberra
Adelaide’s median house price rose by 28.3 per cent in the year to February to $648,418.
Prices were expected to rise by another six per cent in 2022 before diving by eight per cent in 2023 which RateCity said would cause values to drop by $41,492 to $606,726.
Hobart house prices have risen by 25.1 per cent during the past year to $781,069.
The Commonwealth Bank forecast a seven per cent increase in 2022 followed by an eight per cent drop in 2023.
RateCity calculated they would see prices fall by $45,538 to $735,531 by the end of next year.
Canberra’s median house price has surged by 25.4 per cent annually to $1,031,410.
Prices were expected to climb by another five per cent in 2022 but dive by nine per cent in 2023, which would see prices fall by $60,718 below the seven-figure threshold back to $970,692.
Australian property prices in 2021 rose by more than 22 per cent, the fastest annual pace since 1989, after the Reserve Bank cut the cash rate to a record-low of 0.1 per cent.
Governor Philip Lowe had repeatedly promised to keep rates on hold until 2024 ‘at the earliest’ but now the Commonwealth Bank is forecasting a rate rise in June 2022 as wages growth, now at 2.3 per cent, accelerates to 3 per cent.
The Commonwealth Bank is also expecting the cash rate to climb to 1.25 per cent by the end of March 2023.
‘Rising interest rates will generate changes in behaviour, which in turn will impact economic outcomes,’ Mr Aird said.
‘For context, we estimate there are over one million home borrowers who have never experienced an increase in mortgage rates.’