Back to Inspire Home

Property

How low could house prices fall?

By ,| 4 min read

After almost 2 years of skyrocketing house prices, there are signs that property price growth is slowing in Australia.

This could signal good news for aspiring homeowners, with rising interest rates helping push house prices down.

In this article, we explain what’s currently happening with the property market and interest rates in Australia. We’ll also explain predictions from experts on how far house prices are likely to fall in the near future, plus how this might impact home buyers and homeowners.

Why are house prices falling in Australia?

To understand the current trends in property prices, it’s important to rewind back to the beginning of 2020.

While house prices dipped slightly at the beginning of the pandemic, they began skyrocketing as the year progressed.

Why? Because the Reserve Bank of Australia (RBA) dropped the cash rate throughout 2020 which lowered interest rates. In turn, borrowing money became more affordable, meaning the demand for housing grew.

With demand driving up house prices, 2020 and 2021 saw some of the highest dwelling value growth in Australia’s history.

From March 2020 to February 2022, housing values increased by 24.6% in Australia, with the median Australian dwelling value reaching $728,034 earlier this year.

During this time, inflation has been on the rise – in March 2022, the annual inflation rate was 5.1%, much higher than the RBA’s target rate of 2-3%.

The high inflation rate has hiked up the cost of living in Australia. In an attempt to rein in rising inflation, the RBA has been raising the cash rate.

Raising the cash rate has in turn raised interest rates, which the RBA hopes will discourage people from borrowing money. The result? Reduced demand for goods and services, which helps to reduce prices.

Wondering how much you could borrow?

Calculate your borrowing power based on your income.

Calculate now

How much have house prices fallen already?

The cash rate has been rising to try and keep inflation down, and there has already been a slight decline in some areas of the housing market.

Sydney and Melbourne have so far seen the most significant declines.

According to CoreLogic, Sydney experienced a 1.6% drop in dwelling values in June, with Melbourne not far behind, recording a 1.1% decline.

The property markets in the two capital cities have been slowing for a while now and the trend is expected to continue.

Hobart and regional Victoria also recorded a slight decline in dwelling values in June, but all other capital cities and regions recorded steady growth.

Cities like Adelaide and Brisbane are still experiencing growth in dwelling values, but this growth is slowing down.

There has been a decline in unit values recently, with CoreLogic recording a 0.08% decline in unit values in May, the first drop since September 2020.

How far will house prices drop? Here’s what the experts say

Since housing and unit values are already trending downward in some areas of the country, you might be wondering just how far prices will drop.

Experts have made predictions about what might happen with house prices by the end of 2023 as interest rates continue to rise.

ANZ senior economists have predicted that property prices will have fallen 15%, with Sydney and Canberra forecast to drop the most over this period.

Economists from the other big four banks have made similar predictions, with the Commonwealth Bank of Australia (CBA) forecasting an 18% drop in house prices.

National Australia Bank (NAB) has predicted 20% price drops for Sydney and Melbourne specifically.

Echoing this forecast, Shane Oliver, chief economist at AMP, has predicted a decline of 20% for Sydney, Melbourne and Canberra. The other capital cities and regional areas are predicted to experience smaller declines.

It’s important to remember that these are just predictions, and both the housing market and the economy could evolve differently as the RBA continues to try and correct the inflation rate.

If expert forecasts do become reality, what will this mean for home buyers?

Calculate your equity in 15 seconds

See how much cash you could access from your property.

Calculate now

Are falling house prices actually good news for home buyers and homeowners?

While a drop in dwelling values might seem like a blessing after years of sky-high prices, it may not all be good news for home buyers and homeowners alike.

Rising interest rates could reduce any savings home buyers might have gained from a decrease in house prices.

Government grants and incentives for first home buyers may still help some people comfortably get onto the property ladder.

As for people who already own a home, a drop in house prices might not be good news either.

This is because price decline might mean a reduction in the equity homeowners have in their property. Not only could homeowners have less equity, but rising interest rates may put pressure on home loan repayments too.

Both of these factors might make it hard for homeowners to refinance their home loans. But, regularly reviewing your loan and your interest rate can make sure your home loan is still competitive.

Do you want an idea of how much your property is worth? Find out a detailed price estimate for free with Lendi’s property report feature.

What could your home loan repayments look like?

Calculate your loan repayments

$
%
years

Got a home loan question? Just ask!

We're here to help. Get free expert advice at a time that suits you. Choose a time to chat with a Home Loan Specialist here

The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.

Tags: home loan, mortgage repayment, unit, property prices, interest rate

Check today's low rates

Tell us what you are looking for and see if you can save.

Search rates

Check today's low rates

Tell us what you are looking for and see if you can save.

Search rates
Home loan repayment saver tool

Home loan repayment saver tool

Enter a few details about your home loan and see how much you could save on your repayments

Important legal stuff

Lendi is the trading name of Lendi Pty Ltd (ACN 611 161 856), a related body corporate of Auscred Services Pty Ltd (ACN 164 638 171, Australian Credit Licence 442372). We will never sell your email address to any third party or send you nasty spam, promise.

# Quoted rate applies only to PAYG loans with LVR of 80% or less with security in non-remote areas. All applications are subject to assessment and lender approval.

Lendi is a privately owned and operated Australian business. Our mission is to change the way Australians get home loans by providing a faster, smarter and more secure home loan experience designed around the customer’s convenience and needs. Although Lendi compares over 1600 products (2,500+ products including feature and pricing variations) from more than 25 lenders, we don't cover the whole market or compare all features and there may be other features or options available to you. Lendi Group Pty Ltd, which is the ultimate holding company of the Aussie and Lendi businesses is owned by numerous shareholders including; banks such as CBA, 1835i (ANZ’s external venture capital partner) and Macquarie Bank, the Lendi founders and employees, and a number of Australian institutional investors and sophisticated investors including UniSuper.

*WARNING: This comparison rate is true only for the example given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. The comparison rates are based on a loan amount of $150,000 over a loan term of 25 years. Fees and charges apply. All applications are subject to assessment and lender approval. Quoted rate applies only to PAYG loans with LVR of 80% or less with security in non-remote areas. All applications are subject to assessment and lender approval.

IMPORTANT INFORMATION: Loan terms of between 1 Year and 40 Years are available subject to lender and credit criteria. Maximum comparison rate will not exceed 14.99% (see comparison rate warning above). Any calculations or estimated savings do not constitute an offer of credit or a credit quote and are only an estimate of what you may be able to achieve based on the accuracy of the information provided. It doesn't take into account any product features or any applicable fees. Our lending criteria and the basis upon which we assess what you can afford may change at any time without notice. Savings shown are based on user inputted data and a loan term of 30 years. All applications for credit are subject to lender credit approval criteria. Top rates include lenders who are on our panel and are then defined by the circumstances provided by the borrower.

The Lendi Group Pty Ltd, which is the ultimate holding company of the Aussie and Lendi businesses is owned by numerous shareholders including; banks such as CBA, 1835i (ANZ’s external venture capital partner) and Macquarie Bank, the Lendi founders and employees, and a number of Australian institutional investors and sophisticated investors including UniSuper.

Made with love at Circular Quay in Sydney, Australia. © 2022. All rights reserved.