When will Australian property prices fall?

Melbourne skyline.

The Australian housing market has enjoyed remarkable growth during the pandemic era, but the nation’s biggest bank expects the pace of growth to slow down to 7 per cent next year before tumbling in 2023.

Economists at Commonwealth Bank expect a combination of affordability constraints, rising interest rates and tighter lending rules will cause property prices to dip by 10 per cent in two years’ time, finally putting a halt to the market’s meteoric rise.

“The Australian housing market is in the twilight of an incredible boom that has been fuelled by record-low mortgage rates,” said CBA’s head of economics, Gareth Aird.

“The phenomenal lift in prices is not over yet given dwelling prices are still rising briskly in most capital cities. But near-term indicators of momentum coupled with the recent move higher in fixed rate mortgages suggest that conditions will moderate from here.”

According to CBA’s forecast, Sydney property prices will be up by 27 per cent by the end of this year. Growth will then slow to 6 per cent in 2022 before falling by 12 per cent in 2023.

In Melbourne, property prices are expected to end the year 17 per cent higher — one of the weaker results in the country and unsurprising given the time Victoria spent under lockdown. Prices will then rise by 8 per cent in 2022 before dropping by 10 per cent a year later.

CommBank’s report comes not long after ANZ revealed it expects property prices to fall by 4 per cent in 2023. 

The sharper drop predicted by CBA reflects its belief that the Reserve Bank will be forced to start normalising the cash rate in late 2022 — several months ahead of other private sector economists’ predictions.

RELATED: Home loans to get more costly as RBA flags rate rise

“The cash rate is forecast to lift because the economy will be at full employment and annual wages growth will have pushed to the desired level of 3 per cent,” Aird said.

"The extent to which prices correct lower will depend in large part on the speed and magnitude to which the RBA lifts the cash rate.”

While RBA boss Philip Lowe has spent the better part of this year insisting that official interest rates won’t budge until 2024, he was forced to withdraw that forecast following the RBA’s latest policy meeting.

That was followed by an admission that the RBA would like to see the cash rate return to a “neutral rate” of 2.5 per cent, if not higher.

Economists at CommBank believe that once the RBA begins tightening monetary policy, it will only take until the third quarter of 2023 before the cash rate is sitting at 1.25 per cent.

For more information about rates and lending trends, head over to our home loan statistics page. And if you’re in the market for a home loan, visit our home loan comparison page, or browse the selection below.

Home loan comparisons on Mozo - last updated 23 January 2022

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* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

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