Inflation and rising interest rates mean property prices could fall faster than expected

The latest rate hike will add $159 a month to repayments for a homeowner with an average home loan of $600,000, according to figures from comparison website Finder.

“While it’s going to be difficult for a lot of people who have never seen an interest rate hike before, and there will be some adjustment, I don’t think there will be any problems overall,” Emmett said.

AMP Capital’s chief economist, Dr Shane Oliver, expected average house prices to fall 10-15% over 18 months, as previously forecast, but estimated that could now happen more. earlier and faster.

Oliver noted that falling house prices and weak consumer confidence suggested the rate hike was having an impact earlier than in previous cycles. He attributed this to higher levels of household indebtedness, the sharp rise in fixed mortgage rates long before any rise in spot rates, and pressures on the cost of living which had led to a fall in real wages and the purchasing power.

Independent economist Saul Eslake said the RBA had more than completely reversed the cuts made at the start of the pandemic, when the cash rate was cut by 75 basis points. With more rate hikes to come, buyer demand and property prices are likely to be impacted.

“It will probably extend the duration of small [price] declines that began in Sydney and Melbourne a few months ago and now include Canberra. This will likely spread to other capital cities and regional areas where CoreLogic says prices were still rising in May,” he said.

Price declines are expected to accelerate in markets like Sydney and Melbourne, and spread to other cities and regions.Credit:Peter Rae

However, Eslake did not expect a sharp drop in prices. He said he would be surprised if the market fell more than 10% as rates rose, also noting that forced selling – which would increase supply – was unlikely.

Instead, he expected the number of homes for sale to drop significantly as sellers became reluctant to sell in a down market. This would reduce supply and limit the fall in prices.


Gareth Aird, head of the Australian economy at Commonwealth Bank, said their forecast for house prices would be significantly lowered in the coming days, given the latest rise.

A previous forecast that house prices would end the year flat and then fall 8-10% next year was based on a more gradual rise in rates, he noted.

“Sydney prices were already down, as well as Melbourne, but we’re going to see prices go down further and the rate of decline will accelerate with higher interest rates,” Aird said.

However, the price drops could be short-lived. With economic momentum expected to slow significantly, a rate cut could be on the cards by the end of 2023, Aird said.

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