The big four bank expects prices to fall around 18 per cent over 2022 and 2023 as higher interest rates reduce borrowing capacity, according to a new price update released on Tuesday.
But with the bank’s expectation that the cash rate will peak in May next year, ANZ’s economists, Felicity Emmett and Adelaide Timbrell, believe that most of the impact on prices will be fully reflected by the end of 2023.
In 2024, as policy stabilises and then eases late in the year, the pair expects to see a “modest recovery” begin to emerge in housing prices. Such gains, they said, could reach 5 per cent by the end of 2024.
“This assumes the RBA is successful in keeping the economy ‘on an even keel’ and that unemployment only lifts to the low fours,” the economists explained.
They noted that the current reduced borrowing capacity is weighing most on prices.
“Our forecast for the cash rate to reach 3.85 per cent by May next year translates to a reduction in borrowing capacity of more than 30 per cent,” Ms Emmett and Ms Timbrell said.
“The average mortgage size has fallen [by] around 8 per cent so far and is likely to fall further. This reduced ability to pay up will drive prices lower over the coming months,” they continued.
The pair don’t foresee a sharp lift in forced sales, given very large saving buffers, but noted that “there’s no doubt that arrears rates will rise over time”.
Ms Emmett and Ms Timbrell did, however, admit that forecasting house prices is currently “fraught with uncertainty”.
They acknowledged that there’s certainly a risk that housing prices fall by less than expected if the household sector manages higher rates better than the bank expects.
“If that were the case, though, it’s likely that consumer spending wouldn’t soften as much as required to drive inflation back into the RBA’s 2 to 3 per cent target band.
“That would eventually mean an extended tightening cycle, a higher terminal cash rate, and prolonged pressure on housing prices,” the economists said.
Last week, ANZ said the RBA wouldn’t begin reducing interest rates until November 2024, after it previously predicted the first rate cut would take place in August of that year.
This change is due to the challenges of inflation and wage growth, with both expected to remain higher for longer, ANZ’s head of Australian economics, David Plank, and senior economist Catherine Birch said at the time.
Maja Garaca Djurdjevic
Maja's career in journalism spans well over a decade across finance, business and politics. Now an experienced editor and reporter across all elements of the financial services sector, prior to joining Momentum Media, Maja reported for several established news outlets in Southeast Europe, scrutinising key processes in post-conflict societies.
