Property prices could drop by 10% in 2023 - report

National property prices are expected to decline between 7% and 10% in 2023, according to the latest analysis from PropTrack.

The decline, highlighted in the PropTrack Property Market Outlook February 2023 Report released today, follows a 2.3% decline in property prices in 2022.

The biannual report from the property data company, owned by REA Group, combines a comprehensive analysis of the residential property market with an outlook for the year ahead.

Among the key findings from the PropTrack report are:

• Prices are forecast to decline across all capital cities in 2023, with the largest falls expected in Sydney (-8% to -11%), Brisbane (-8% to -11%), Canberra (-8% to -11%), Melbourne (-7% to -10%), and Hobart (-7% to -10%).
• The capital cities expected to hold up the best are Adelaide (-3% to -6%), Darwin (-3% to -6%), and Perth (-5% to -8%).
• This forecast is based on a prediction that the cash rate will rise a further 50 basis points from its current level (3.1%) and then remain  on hold throughout 2023, starting with a 25-basis point increase in February.
• If interest rates are hiked a further 50 basis points, borrowing capacities would be down by around 30%.
• Even with falls of up to 10%, national property prices will still be more than 18% above pre-pandemic levels.

PropTrack report author’s view

The director of economic research at PropTrack and report author, Cameron Kusher (pictured above), said as interest rates have risen faster and higher than expected, property prices have fallen, along with sales volumes.

“At the beginning of May 2022, official interest rates were sitting at 0.1%,” Kusher said. “By the end of 2022, the cash rate had increased to 3.1% – the highest it has been since November 2012 – due to the fastest and most substantial interest rate tightening cycle in many decades.”

“While we don’t expect interest rates to rise as fast and high as they did in 2022, we are expecting some additional increases early on in 2023.”

Kusher said PropTrack expected two 25-basis point cash rate hikes from the Reserve Bank of Australia, one to be delivered today (January 7).

“Following this, we expect a period of interest rate stability,” he said. “However, an interest rate cut late in 2023 is a very real possibility depending on how the economy performs.

With borrowing costs continuing to rise and the subsequent reduction in borrowing capacities, property price falls are likely to continue and accelerate in 2023, Kusher said.

“We’re expecting prices to decline by up to 10% nationally in 2023, with greater falls expected in the larger capital cities,” he said. “Demand for regional properties is also likely to slow and, given prices have seen stronger growth in these areas than within the capital cities, we expect to see price falls in these markets too.”

Kusher said following the exceptional price growth throughout the pandemic, last year’s changing market conditions saw prices fall 2.3%.

“With prices down 4.3% from their peak, a fall of up to 10% this year would result in cumulative declines of close to 15% since the start of the downturn,” he said. “Importantly, this fall would represent a decline of around half that of the decline in borrowing capacities and would still have national home prices sitting above their pre-pandemic levels.”

The strong labour market, with unemployment the lowest it has been in decades and wage growth accelerating, may also support the housing market, Kusher said.