RBA warns property prices to plunge 20%

By 2024, house and unit values are expected to lose a fifth of their value – all but wiping out the unprecedented gains made in the 2021 property boom.

That’s according to freedom of information documents from the RBA obtained by Sydney Morning Herald.

It comes as Australia has endured interest rate hikes for the past six consecutive months, seeing the cast rate rise from a record low of 0.1 per cent to 2.6 per cent since May.

In the FOI documents, an unnamed RBA economist wrote: “We’re now anticipating housing prices to decline over the next few years.

“That reflects the ongoing slowing in momentum in the market and the steepening of expectations for the future path of interest rates.”

This same RBA economist tipped property prices to drop by 11 per cent by the middle of next year.

However, they warned the fall could be larger, hitting 20 per cent by 2024.

Australia’s two biggest cities, Sydney and Melbourne, are in for a rough rest of the year too, if the RBA’s predictions come true.

Properties in both state capitals are slated to fall by 1.5 per cent every month for the remainder of the year.

Since May, when interest rates were first raised after being at record-low levels, the real estate market has shown signs of slumping.

House prices fell by 0.19 per cent in September on average across Australia, according to a report from PropTrack.

In the capital cities, prices dropped by 0.22 per cent overall in the last month.

This means capital city prices have reversed, with falling prices in the last seven months taking them to the same level they were a year ago.

That number is largely in line with NAB’s prediction, released earlier this month, which forecast house prices to plummet even further next year with an overall drop of 23 per cent in some states between 2022 and 2023.

Across Australia, most capital cities, apart from Sydney, will experience a brutal hit to house prices in 2023 after they shot up during the pandemic, the bank predicts.

Surprisingly, Hobart will suffer the biggest drop in house values next year with prices set to plunge by 16.6 per cent, after falling this year by 6.4 per cent, NAB found.

The RBA is hoping interest rate rises will curb spending and bring inflation to a controllable level. The consumer price index (CPI) currently sits at 6.8 per cent.

However, many Australians are already struggling to meet mortgage repayments.

Almost two-thirds of Australian homeowners are worried about meeting their mortgage repayments as interest rates continue to be hiked, with younger people who purchased in the past 12 months “acutely” at risk, new research from AMP Bank found.

If rates rise again in November as predicted, one in four mortgage holders – up to 1.1 million people – will be at risk of financial stress.

The next monthly RBA meeting is next Tuesday, where they will announce if the cash rate is again going to be lifted.