What to Know About House Prices in Australia in 2022

Posted by Tristan Angelini on 08 July 2022

According to the Australian Bureau of Statistics, Australia’s residential housing has passed the $10 trillion mark. From the beginning of 2022 up to March, the value of residential dwellings increased by $221.2 billion, bringing the total to $10.2 trillion. According to the quarterly release in June, the residential land value to GDP has now exceeded Japan’s record of 330 percent during the height of the property bubble in 1989. Out of the $10.2 figure, $9.7 billion was owed by households.

The recent reports about interest rate hikes announced by central banks in Australia have had a chilling effect on the property market. The Reserve Bank of Australia has revealed that the cash rate in Australia could most likely climb to 2.5%, while simultaneously, inflation could climb up to 7% by the end of 2022. The governor of RBA, Philip Lowe, warned Australians about colossal interest rate increases. When cash rates are higher, lenders would most likely choose to hike variable interest rates. As the RBA predicted cash rates increase, Australia could most likely face more expensive repayments each month. For example, for a 2.5% cash rate, the available variable rate in the nation may be about 5.32% - a $500,000 home loan might see an extra $629 monthly.

Currently, house prices have already begun to drop in some capital cities in Australia. According to the latest figures, Sydney prices decreased by 0.1 percent in April. This is the first time since the pandemic. ANZ also adds that Sydney could possibly experience a more dramatic decrease. In Hobart, the recorded drop was at 0.44. This is considered the first price fall since early 2018.

House prices are expected to decrease in Melbourne by 5 percent and about 6 percent next year. The past year has seen massive growth in median prices in Melbourne with 9.4 percent to $930,000, while a significant increase in regional Victoria with 17.4 percent to $640,000. These growths in Victoria plus NSW outpaced their capital cities, houses, and attached dwellings.

Which among the Australian cities has the strongest rise annually?

In median houses, it has to be regional Tasmania with a 30 percent increase to $520,000. The second would be Brisbane, with a 29.3 percent increase making median house prices $787,500.
The hike in interest rates imposed by the Reserve Bank of Australia has created some fears regarding significant property investments. The hike was to control the soaring inflation, and with the continued increase in the cash rate, experts fear that the housing market could crash the housing market by potentially adding a 30 percent increase.

According to CoreLogic research director Tim Lawless, the current challenge for families is to funnel more of their income to fund not only their mortgage repayments but also their essential living costs. Because of the higher costs of food and family, household savings would most likely taper.

The higher mortgage rates would add more risk to values – even lower than what it is heading now like in Sydney and Melbourne. Currently, the loss of steam can already be felt in terms of the rate growth of housing markets. Home values were already easing even before the increases in cash rates.

So, what caused the slowdown?
Tim Lawless says that it was a combination of different factors. These factors include higher fixed mortgage rates, lower consumer interest, tighter lending conditions, and the affordability issues Australia has been facing for years.

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