Property prices to fall 18% through to 2023?
30 August 2022 by Gavin Chau Bluewealth Property
In case you hadn’t noticed, the news cycle has switched bearish, with ANZ predicting a property market crash of 18% in capital cities. Before we all panic, banks have historically had a terrible track record in predicting property market movements. To put this in context, the Melbourne property market hasn’t had an 18% drop in at least 141 years.
In 2020 CBA predicted a 32% fall in property prices by March 2023. By February 2021, prices had risen by nearly 30%. The market was booming, and CBA quickly flipped, predicting an increase of 16% to 2022. This craziness has been the case for as long as I can remember.
Its interesting to note that despite their grim warnings, their actions are at odds with their words. Banks have been actively competing for new customers despite the rising cash rate, with CBA cutting its lowest variable rate by 0.15%, ME Bank, Macquarie Bank, and ANZ also made similar moves with cuts of up to 0.25% between May and July.
While prices have moderated, the reduction in building supply has caused a rental squeeze, with rents increasing faster than property prices for five months now. Annually rents have grown by 9.5% in the 12 months to June – the fastest rate of growth in 14 years. This situation will invariably get worse with the Albanese Government planning to ramp up the skilled migrant intake levels to between 180,000 to 200,000 a year to address the labour shortages plaguing businesses at the moment. Due to the long lead times in construction, the building industry is unable to adapt to rapid changes in population, and there really isn’t anywhere else for rents to go but up.
Falling unemployment rates, rising rents, and an undersupplied housing market. These conditions are virtually identical to what we saw in 2008 and what followed of course, was an enormous bull run with east coast property prices increasing by nearly 90% to 2018. The trigger back then was the falling interest rates. With all the forward indicators of inflation peaking, we expect the local interest rate cycle to peak between the end of this year and the first half of 2023. When rates drop, we see no reason for the property market not to continue to respect this pattern – we expect the east coast market to turn within the next six months or so and peak somewhere around 2026.