It’s a grand old day because the Reserve Bank of Australia (RBA) has predicted house prices could fall by 20 per cent in the next two years which would be the biggest drop in prices since the 1980s.
A 20 per cent drop is a lot, but to be clear, that’s basically just going to take us back to where we were at the start of 2020. House prices across the country reached record highs in 2021 and went up 25 per-fucking-cent in 12 months.
The RBA has forecast prices could drop by 11 per cent by mid-2023 and the 2021 growth could be completely wiped out by the end of 2024. I’m down on my knees praying here.
House prices in Sydney and Melbourne — Australia’s most expensive cities — dropped for the first time in a long time in April 2022 and have been steadily falling since.
The RBA tipped in August prices would fall by 1.5 per cent per month for the rest of the year in Sydney and Melbourne and other cities and regional areas would soon follow, the Financial Review revealed on Monday.
Documents released under Freedom of Information showed RBA economists were surprised by how much the property market nose-dived in the June quarter because it came well before most households would’ve actually felt the effects of the rising interest rate.
“We’re now anticipating housing prices to decline over the next few years. That reflects the ongoing slowing in momentum in the market and the steepening of expectations for the future path of interest rates,” an RBA economist noted in the documents.
To give you a bit of context, one of the main reasons for the house price uptick in 2020 and 2021 was a record-low interest rate.
When the RBA moved the interest rate to 0.1 per cent in 2020, people rushed to take out mortgages and were able to take out bigger loans than before. Some people could afford to pay more for a property, so the prices rose. But it all went too far and inflation started to spike.
To lower inflation, the RBA raised the interest rate to basically discourage people from spending so much — or spending more than they could actually afford.
It seems the strategy’s working because house prices have dropped, but due to a number of factors inflation is still too high and the cost of living is so borked that economic growth has slowed right down and a recession in Australia looks increasingly likely.
“Interest rates need to rise to ensure inflation returns to the 2 to 3 per cent band over time and inflationary expectations remain anchored,” the RBA’s deputy governor Michele Bullock said last week.
“We still feel there is a path for us here where we can get inflation down, not go into recession, and preserve most of the gains in employment we’ve had.”
The RBA currently forecasts inflation will peak at 7.8 per cent for the December quarter, but it could get worse still.
Flooding was a major factor in Australia’s rising inflation earlier this year and with more extreme weather events on the horizon this La Niña season, who knows what could happen.
But in summary: plummeting house prices = good for young people, bad for homeowners and investors. But hey, at least they have roofs over their heads, they’ll be fine.
