On the back of a faster and higher expected rise in interest rates, ANZ and National Australia Bank economists have joined the Commonwealth Bank in downgrading their housing price forecasts.
Speaking with realestate.com.au recently, ANZ senior economists Adelaide Timbrell and Felicity Emmett stated that the Reserve Bank of Australia's current path on interest rate rises will lead to a faster reduction in housing prices.
After previously believing there would be drops of 3% in 2022 and 8% in 2023, they have revised their estimates, and now feel there will be a housing price drop of 5% in 2022 and 10% in 2023.
"This would result in a housing price reduction of around 15% between April 2022 and December 2023. For context, this would leave prices 6% above pre-pandemic levels," said Ms Timbrell and Ms Emmett.
However, even if home prices did fall by the 15% predicted, they would still be higher than at the outbreak of the pandemic. PropTrack data shows property prices increased nationally by a whopping 35.3% between March 2020 and May 2022.
Ms Timbrell and Ms Emmett feel the recent interest rate rises will see borrowers have reduced boring power, which will lead to a reduction in purchase prices.
"Given that the average borrower has a large savings buffer, we expect reduced borrowing capacity to be the key driver, not forced selling.
"Stronger household income growth, large savings buffers, increasing population growth via immigration and continued economic growth will all cushion the fall in housing prices as interest rates increase," they added.
In a recent television interview, RBA governor Philip Lowe noted that some households are struggling to cope with the higher interest rates on top of already higher fuel and food prices.
Mr Lowe, who also stated that the RBA does not target housing prices, advised that he believes the cash rate will hit 2.5% at some point.
Despite the current constraints, Mr Lowe said many households had built up very large financial safety nets during the pandemic, saving an extra $250 billion over the past two years, and also stated that the number of people falling behind in their mortgage payments is currently declining.
So what happens to property values as interest rates rise? As interest rates rise, there are less people who are able to afford houses in certain price brackets. For example, if someone could afford to buy a $400,000 home at 1% interest they may need to look at $350-360,000 properties if the rate is at 2%.
This means there is a smaller pool of people looking at each price point, and if a seller needs to move their property quickly, they may need to accept a lower price now than they would have two years ago.
As everyone waits and watches to see what happens next, it is possible that a patient home buyer could reap the benefits of lower house prices in the coming months…
Saving for a home loan deposit and going through the motions of applying for mortgage loans is a handful for any Australian, but it can get that much trickier if you’re self-employed. As well as juggling your business you also need to prove your worth.While you might need to jump through a few extra hoops, it’s not impossible to own your home or upgrade if your existing home is getting a little small.
The ATO acknowledges the decrease in asset value and has set up a timeline for individual asset life expectancy. This means that even though the expenses of asset depreciation might not be covered in rental earnings, you can claim investment property depreciation against your taxable income. For example, if you buy a new carpet for $6,000 ATO lists this value expectancy as ten years. This means you can claim a $600 tax deduction every year for ten years under straight-line depreciation (Prime Costs). We’ll get into the formula for calculations a little later in this blog.
We know what you’re thinking – not another email sign-up!
But hear us out.
Our monthly update is full of valuable news and advice on all things property.
Sign up and your future will thank you for it.