Property Prices and Mortgage Rates in Australia: Outlook for 2023

After enjoying a powerful boom in the aftermath of the Covid-19 pandemic, the Australian real estate market braces for declining prices and higher mortgage rates. That’s largely due to the interest rate hiking cycle initiated by the Reserve Bank of Australia (RBA) in May 2022. Since then, the housing market has witnessed a sharp price decline, dropping by 8.4% from May 2022 to January 2023. 

Amidst the global fears of recession, more interest hikes are expected through the first half of the year, which could further drop the prices. The price downturn has also hit the sales volumes, as new listings have dropped dramatically. 

So where is the market headed in 2023, and when can we expect the prices to hit bottom before they start rising again? We can find some answers in PropTrack’s Property Outlook Market Report for 2023

Property Market Projections

According to PropTrack’s report, most Australian cities are expected to experience a sharp price decline, more so for houses than units. The prices are estimated to drop by 5% to 11%, with the highest declines projected for Sydney, Melbourne, and Brisbane. 

In comparison, nationally, the prices fell by 2.3% in 2022. So it’s clear that the impact of RBA’s current interest rate hike cycle will be felt more acutely in the current year. 

Although prices are expected to drop further, the market may have passed the peak month-on-month price decline rate. In January 2023, CoreLogic’s Daily Home Value Index (HVI) dropped by a percentage. This indicates that the pace of housing price decline is likely slowing down, and we may not see any surprising high drops in the coming months. That said, the prices will continue their downslide through the year. 

Interest Rate Hikes

As for the interest rate, experts expect smaller hikes from the RBA for the next couple of months, but a pause in the cycle is nearer. The interest rate reached an 11-year high after the recent 10th consecutive hike, bringing the rate to 3.6%. 

Further increases are expected in the following months as inflationary pressures are still high and the fear of recession is strong. 

The interest rate increases have clearly made mortgages expensive for new home buyers. But the impact is also felt by those on variable mortgage rates and those ending a fixed rate term. Refinancing a home in the current situation can be expensive for homeowners despite price declines. 

Is It Really That Bad?

2023 is clearly looking like the trough year after the prices peaked in 2021, but the price increases during the pandemic have added significant value for properties. In other words, despite the continued price downturn, houses are still more valuable than before the pandemic. 

The PropTrack report says renting is cheaper than paying the mortgage at the current rates. This is surprising because rents across major Australian cities have skyrocketed in the last year.

The low property prices present opportunities for investors who can afford to stick around for the long haul. However, the higher interest rates aren’t making for very favorable conditions. 

Dream Design Property Finance - DDP Property Finance
Dream Design Property Finance Pty Ltd Trading as DDP Property Finance
ABN : 25602911606
Loan Market Pty Ltd
Australian Credit Licence 3902228.
© Copyright 2023 - DDP Property Finance - All Rights Reserved
phone-handsetmap-marker linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram