Home prices face the biggest fall in 50 years

AUSTRALIAN house prices are set to plunge the most in 50 years as rising interest rates cripple the sector after years of unprecedented growth.

Deutsche Bank Research economist Phil Odonaghoe said house prices fell in May and June and, with interest rates set to increase, prices are expected to fall 15 per cent year-on-year by the middle of 2023.

“If our forecasts prove accurate, the middle of next year will see the weakest house price growth recorded in Australia for more than 50 years,” he said.

But he said the trough would still be shallower than the most recent peak for the housing market of +22 per cent year-on-year growth in the fourth quarter of 2021.

Mr Odonaghoe said the housing market looked to have peaked in the second quarter of 2022, meaning the projected fall from peak to trough was likely to be 15 per cent.

The market was then likely to recover some ground, with Deutsche flagging house price growth of around +5 per cent year-on-year by the middle of 2024.

Since 1971, there have only been six episodes where Australian nominal house price growth has turned negative in year-end terms. On average over those six episodes, the low-point was about a quarter as large as the peak.

“The average peak in growth in these six episodes was +12 per cent (year-onyear), the average trough in growth was just -3 per cent (year-on-year),” he said.

In good news for the housing market bulls, Mr Odonaghoe said periods of negative growth in the Australian housing market were infrequent and usually shortlived in duration.

“In only 16 of the past 204 quarters has Australian house price growth registered negative year-end growth,” he said.

Mr Odonaghoe said there was a striking correlation between house price growth and auction clearance rates, with clearance rates leading prices by about six months.

“At current levels, auction clearance rates suggest growth will continue to decelerate from +11.2 per cent (year-on-year) in Q2 to low single digits by the end of the year,” he said.

On an encouraging note, he said clearance rates had been relatively resilient to rising rates, at least so far.

“Recent auction clearance rates in Sydney and Melbourne have been broadly stable in the mid-50 per cent range, albeit well down from the (approximately) 90 per cent peaks seen in March 2021,” he said.

It comes as recent data from property researcher Proptrack revealed a fall in housing prices at a national level of -0.25 per cent in June.