The bank expects rate rises and affordability constraints to push prices down
National Australia Bank predicts that property prices will tumble about 10% next year as interest rates rise and affordability constraints put the squeeze on would-be buyers.
Last year, NAB forecast a 3.6% price rise in 2022 before changing its prediction to 5%, then settling on 3.6%, The Australian reported. The bank also expects a price fall of about 10% in 2023, but said “this correction comes after a very sharp run up in prices over the last year.”
Recent data from CoreLogic showed dwelling prices spiking 22.4% over the past 12 months. However, there has been a trend of slowing price growth since the monthly peak of 2.8% in March last year.
NAB described its projection as a “relatively orderly decline” in property values. The bank said that affordability constraints will begin to squeeze the market, and rising mortgage rates would exert downward pressure on home prices later this year.
“With our view on rate hikes coming forward, we now expect the turning point in property prices to occur in the second half of 2022,” the bank said. “That sees a flatter outcome in 2022 and a slightly larger fall in 2023.”
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NAB also predicted that the Reserve Bank of Australia would hike the cash rate in November, followed by a steady series of increases in 2023 and 2024. Westpac and Commonwealth Bank are predicting that the RBA will begin hiking rates in August, The Australian reported. ANZ economists are splitting the difference, predicting rates to rise in September.
Banks are already hiking their fixed rates in anticipation of the rise, with NAB the latest to up its rates on Friday.
“Analysis by RateCity.com.au shows the big four banks’ three-, four- and five-year fixed rates are now above pre-pandemic levels,” RateCity research director Sally Tindall told The Australian. “Within the next six months, we could see a number of the longer-term big four bank fixed rates hit 4%. There are still a handful of one- and two-year fixed rates under 2%, but they’re becoming increasingly harder to find, which makes shopping around all the more important.”
