Steeper falls on way for housing
BANKING giant ANZ has revised down its housing forecast and now expects capital city property prices to fall 18 per cent to early 2024.
Surging mortgage rates will cause prices to slip between 15 and 20 per cent by the end of 2023, before recovering 5 per cent in 2024, according to the bank’s latest housing update.
ANZ had previously forecast property prices to fall 15 per cent from peak to trough over 2022 and 2023.
Smaller borrowing capacity, rather than an increase in the number of forced sales, is likely to push property prices lower.
The report predicts the cash rate will hit 3.35 per cent by end 2022, which equates to variable mortgage rates just under 6 per cent. This would cause a reduction in borrowing capacity of 30 per cent.
ANZ senior economists said the steeper than expected trajectory of interest rates would cause prices to fall further.
“Already housing finance data show that average new mortgage sizes are beginning to fall,” the report says.
“We expect that the average share of household income that goes to mortgage interest payments will rise to nearly 11 per cent at the peak.”
Forced sales are not expected to increase, given the “strong position” of borrowers.
Despite more than half of payments on fixed rate loans being expected to jump over 40 per cent once the term expires, the pain is set to be offset by very low arrears rates, large savings buffers accumulated through the pandemic and the concentration of debt to wealthier households.
The forecast of a modest increase in 2024 is predicated on the belief the cash rate will be cut in the latter half of the year.
Construction is also set to fall 16 per cent over 2023 and 2024 as higher mortgage rates and lower house prices flow through to weaker approvals and then falling construction work.
Building approvals have come down and stabilised from record highs of recent years, which were powered by stimulus. Much of the backlog from record housing approvals is expected to be worked through this calendar year.