Housing prices in Australia’s two largest cities are tipped to fall next year as panicked homeowners look to “distress sell” their properties.
In his annual Boom or Bust Report, SQM Research managing director Louis Christopher said a jump in “distressed selling activity” could finally see house prices come down in Sydney and Melbourne.
According to the report, Christopher predicts Sydney’s housing market will record a “moderate fall in dwelling prices” of almost four per cent, with the city’s free-standing housing in the middle to outer rings seeing the greatest change.
Melbourne is also forecast to enter into a “modest correction”, with prices tipped to fall by up to three per cent for the average home.
Christopher says the price drop is a result of homeowners struggling to afford their rising mortgage payments, a trend that is expected to continue as interest rates climb.
Homeowners who purchased a property within the last two years made up most of the projected distressed sales thanks to 12 consecutive rate hikes ballooning payments in the last year.
“The interest rate rises of 2022, 2023 and possibly 2024 will finally start to bite homeowners and would-be homebuyers alike,” Mr Christopher said in the report.
“Distressed selling activity is expected to jump, especially in NSW where we are already starting to see a new trend upwards in that data set.”
Distressed listings in NSW have already seen a significant increase, rising 78 per cent since last year.
But the housing market still refuses to crash
Despite the predicted decrease, the report fell short of forecasting a crash for the overblown housing market, citing severe housing shortages and strong population growth as buffers against a significant price drop.
“We’re not forecasting any type of crash by any means because the severe housing shortage and still fairly strong population growth are going to create a buffer to stop any type of double double-digit housing price correction for next year,” said Mr Christopher.
SQM expects a sharp decline in home completions over 2024 to 153,000 homes, with the current building approval numbers suggesting the nation will have the lowest completion rate since 2012.
The report’s predictions are based on the assumptions that interest rates will cap at five per cent, population growth will slow, and unemployment will rise to 5.5 per cent.
In this scenario, Sydney, Melbourne, Canberra, Hobart, and Darwin are all expected to see a fall in housing prices, contributing to a nationwide decline forecast at one per cent.
“For much of the rest of Australia, the sharp deterioration of housing affordability, driven by ongoing interest rate rises which are now (in SQM’s opinion) at restrictive levels, plus an anticipated slower economy, will see a modest to moderate correction in dwelling prices take place in Sydney, Melbourne, Canberra and Hobart,” Mr Christopher said.
Only two cities, Perth and Brisbane, are expected to see gains in their housing markets thanks to a recovering Chinese economy and “strong demand” for commodities.
“The cities of Perth and Brisbane are the only cities expected to record price rises with each respective market driven by a tailwind of a recovering Chinese economy which is anticipated to see strong demand for base commodities such as iron ore,” Mr Christopher said.
