Market Prediction: Melbourne House Prices to Fall by End of 2023

Posted by Tristan Angelini on 13 June 2022

How is this going to affect the property market?

As the known factors that drove Melbourne to the growth throughout the property market boom lose their potency, industry observers are predicting faster declines and that by the end of 2023 or about in 18 months, house prices may experience falls up to $135,000 – an 11 percent plunge that could possibly leave mortgages worth more than houses.

Melbourne home values are quite expected to leave a group of home buyers, most likely including the first-time buyers, to owe banks much more than they initially thought.

Several reports showed that Australian major banks predict that home prices across the city would plunge by the end of 2023. Recently, PropTrack figures showed that declines can already be felt as early as now and Australia’s fourth-biggest lender, which is ANZ, has made a warning that a 5 percent cut by December is highly likely.

How will this decline affect owners?

From 2020 to 2021, major cities such as Sydney and Melbourne took a major role in the property boom that witnessed skyrocketing prices in almost every capital city. However, this year, experts find that the situation has taken a completely different turn. A decline in prices is expected and the decrease in this magnitude could cause owners to pay more than how much their homes originally cost. Melbourne’s market is mostly flat this year so far, and because of this, those who have bought their homes this year could be the most affected.

AMP Capital Chief, Shane Oliver predicts that buyers this year with low deposit levels will most likely experience a greater degree of risk.

The Reserve Bank is reportedly raising interest rates and the question remains whether the effects would differ or become similar to what happened in 2019. We can remember that in 2019, banks raised borrowing costs for new customers as ordered by prudential regulators in order to help slow down the market.

Is the property boom for Sydney and Melbourne officially over?

All signs point to yes according to real estate commentators and industry experts. In April last year, CoreLogic’s data showed that Melbourne’s market growth was 5.8 percent compared to this year with just 0.1 percent over the past three months. The reason? Industry experts point to lesser demand in the market plus other factors such as rising interest rates and affordability.

Global factors such as COVID-19-related disruptions to the supply chain and the war that’s taking place in Ukraine are driving the inflation even higher not to mention there’s a sharp rising in labor costs, and increased energy prices, which adds to why interest rates are rising as well.

The head of Commonwealth Bank Gareth Aird adds that it seems like some buyers have already hit their limit in terms of how much they can afford to pay for a particular property. The stretched budgets among homebuyers are really hurting the market right now.

The two capital cities, Sydney and Melbourne have both peaked especially in March when homebuyers rushed to cash in ahead of the interest rate hike. Right now, the market is experiencing such declines as predicted earlier this year by market experts.

The ANZ also reported that Melbourne may experience a 5 percent decline by the end of this year and another 6 percent in 2023.

So, what now?

It’s still important to understand that the Australian economy is resilient. NAB chief economist, Alan Oster says that there were already expectations for Melbourne home values to lose about 1.5 percent across this year and 10 percent further next year, which was well ahead of the 18 percent growth in 2021. He adds that this is no real cause of concern.

The Governor of the Reserve Bank of Australia also stated that households and business balance sheets are generally in good shape, plus there is a pick-up in business investment as well as a huge pipeline of construction projects to be completed, so this is still excellent news.

(sources: https://www.news.com.au/finance/real-estate/melbourne-homes-tipped-for-135k-wipeout-in-next-18-months/news-story/00aab8e30833f3362a80b4086c7629b1, https://www.smartpropertyinvestment.com.au/research/23720-property-market-update-melbourne-march-2022, https://www.rba.gov.au/media-releases/2022/mr-22-14.html?utm_source=linkedin&utm_medium=social&utm_content=media-release&utm_campaign=monetary-policy-decision-2022-june)

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