Where house prices will go in 2023 | Really Simple Money


Nothing kills a housing boom like interest rate rises, and we’ve just had eight of them from the Reserve Bank this year.


It’s made a huge difference. According to research house CoreLogic, combined capital city property prices are around 6% off their 2021 peaks, and some are predicting prices could fall by another 10% in the next year. NAB reckons they’ll fall by 20% off their peak.

As with any volatile and changing market, there are winners and losers but sadly there are likely to be more losers.

Vendors are losing out as prices fall, and prices in eight out of ten suburbs are on the slide. 

The increasing interest rates mean that people’s borrowing power has been eroded, by an estimated 25%, so they are effectively missing out on any upside to falling prices. Lending data from the Australian Bureau of Statistics shows housing lending commitments were down 2.7% in October, so its starting to bite. 

People who bought at the peak of the market are now faced with the grim reality that their properties are worth less than they paid for them. 

Some of them will be facing the nightmare of “negative equity”, where they owe more than their homes are worth. It is likely to mean an increase in houses sold out from under people who can’t make their mortgages. 

Then there is the much hyped “mortgage cliff,” where an estimated $270 billion in mortgages taken out at ultra low rates at the height of the pandemic will move from low fixed rates to variable rates of around 5% or so, and likely rising. 

That means higher monthly payments, and RateCity says that on average people are now paying $834 more per month on their mortgages than they were a year ago. That means that some people are paying a lot more than that.

So that’s quite a few people losing out of the falling market. Some will be winners, but they will be people who sold at the height of the boom and are now cashed up to go back into a falling market. 

Anyone with a big deposit can probably insulate themselves from the market pain, and also take advantage of the lower prices.

bank slashes mortgage rates

The banks, of course, will also be winners. Their cost of funding will go up with interest rates, but they are making sure their margins stay fat enough to guarantee their profits. 

And with $270 billion in mortgages about to be repriced at several percentage points higher, the reality is that they are set to reap something of a bonanza from the current market. 

Historically, however, the housing market has delivered significant wealth to Australians over many years. Even if it dives it has got back up again and created fresh opportunities from its various cycles.

It might be worth hanging onto that thought in 2023 as some of us lick our wounds after falling off the cliff. Be angry with the banks, because they deserve it, but you might need them again soon enough and remember that they will always need you. 


Source link

You may also like...

Leave a Reply

Your email address will not be published. Required fields are marked *