Property prices to fall by 10% in 2023: NAB

The Australian property market will finally undergo a correction this year before falling sharply in 2023, according to analysis by NAB.

In its latest Quarterly Property Survey, the major bank said that capital city prices, which had shown signs of losing steam in the final months of 2021, will creep up by around 3 per cent this year.

“We have brought forward the timing of the correction we expect in house prices to late-2022 as affordability constraints begin to bite and rising mortgage rates place downward pressure on prices," said NAB chief economist Alan Olster.

“This would offset gains seen in early-2022, so that overall, prices end the year roughly flat.”

The market will then take an even sharper turn, with property values across capital cities expected to drop by 9.3 per cent over 2023.

While news of a correction might come as a relief to hopeful buyers, NAB was quick to point out that an eventual drop in prices won’t be enough to wipe out the gains seen in 2021.

“We see this as a relatively orderly decline, and it is important to remember this correction comes after a very sharp run up in prices over the last year,” Olster said.

The declines are expected to be steeper in Sydney and Melbourne, with NAB expecting prices in both cities to end the year 11.4 per cent lower.

NAB property forecasts for 2022 and 2023

NAB has based its forecasts on expectations that the Reserve Bank of Australia will begin normalising monetary policy starting November 2022 and lift the cash rate to 0.75 per cent by February 2023.

The cash rate currently sits at 0.1 per cent. At its first policy meeting of the year, the RBA decided to retire its $350 billion bond buying program, signalling the economy is on the mend.

“Q4 2021 is now expected to see a full recovery as the Delta lockdowns eased, and while Omicron is expected to weigh on activity in early-2022, the impact is expected to be short-lived,” Olster said.

“Wages growth will pick-up as unemployment declines but is likely to strengthen only gradually. That said, as wage pressure builds the RBA will be more comfortable with inflation remaining sustainably within the target band.”

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