Sydney, Melbourne real estate: Why house prices could rise in 2023 even with interest rates rising

House prices could rise again in 2023 even if interest rates keep rising because rental vacancy rates are low and immigrants are moving to Australia.

SQM Research’s predictions are at odds with Commonwealth Bank and Westpac, who expect further price declines next year.

But founder and managing director Louis Christopher expects capital growth of five to nine percent in 2023, once the Reserve Bank stops raising interest rates by midyear.

“House prices in the Australian capital will begin a recovery in 2023 as a result of a pause in interest rate hikes which we can expect to occur no later than June 2023,” it said.

Westpac and ANZ expect the Reserve Bank to raise rates in February, March and May, taking the cash rate to an 11-year high of 3.85 percent, up from an existing 10-year high of 3.1 percent now.

House prices could rise again in 2023 even if interest rates keep rising because rental vacancy rates are low and immigrants are moving to Australia (Pictured, Boxing Day shoppers in Sydney)

The 30-day futures market, which bets on interest rates, also forecasts a cash rate spike near that level for August, but no rate cuts until 2024.

Christopher said that the end of rate hikes, in this cycle of monetary policy tightening, would mean a return to house price increases in 2023.

Sydney was expected to see a rise of 8 to 12 per cent next year, in a city where house and unit rents over the past year rose 28.9 per cent to $711.65.

“Sydney is expected to lead the recovery,” Christopher said.

This recovery in Sydney will be driven by increased underlying demand for residential property as a result of increased overseas arrivals, return to office, existing rental housing shortage, new stamp duty/ property tax and the expected continued strength of the Sydney economy.’

The NSW Coalition government has introduced a policy allowing first-time homebuyers to pay an annual property tax instead of an up-front stamp duty of tens of thousands of dollars, but Labor Opposition has promised to scrap the policy if he wins the March 2023 elections.

Brisbane’s prices were expected to increase between three and seven percent in 2023, ahead of Melbourne’s expected two to six percent increase and Adelaide’s one to four percent increase.

Perth was expected to see an even bigger increase from 9 to 13 percent.

SQM Research’s prediction was based on the Reserve Bank’s cash rate peaking at four percent, inflation not breaking a 32-year high of eight percent, and rate cuts in the second half of 2023. (see scenario two in the image)

SQM Research’s prediction was based on the Reserve Bank’s cash rate peaking at less than four percent, inflation no higher than a 32-year high of eight percent, and rate cuts in the second half. of 2023.

“It will certainly be a very challenging year for the RBA to walk the tightrope and achieve a soft landing for the Australian economy,” Christopher said.

“However, contrary to current popular opinion, I believe that they will manage to do just that.

“If the target rate stays below four percent, then it’s unlikely we’ll have a spate of forced sales in the housing market.”

But if the Reserve Bank did not cut rates next year, SQM Research still saw property price increases, albeit more moderate in nature, with weighted increases in capital city prices of three to seven percent.

Under this scenario, Sydney prices would increase between five and nine percent, as Melbourne and Brisbane prices increased between one and five percent, and Perth prices increased between four and eight percent.

The big banks have a different view on house prices, although they also expect rate hikes to stop by mid-year.

The 30-day futures market, which bets on interest rates, also forecasts a cash rate spike near that level for August, but no rate cuts until 2024.

Westpac expects an eight percent drop in Sydney in 2023, as Melbourne prices fell 10 percent.

Brisbane and Adelaide prices were expected to fall 6 percent next year, while Perth prices fell 4 percent.

The Commonwealth Bank is less concerned about house price declines and expects the February rate hike, bringing the cash rate to 3.35 percent, to be the last during this tightening cycle. .

Australia’s largest property lender expects Sydney prices to hold steady in 2023, as Melbourne suffered a two per cent drop, Brisbane declined six per cent, Adelaide lost seven per cent and Perth fell five per cent. .

Westpac expects an eight percent drop in Sydney in 2023, as Melbourne prices fell 10 percent.

The Reserve Bank of Australia has raised the cash rate at eight consecutive monthly meetings since the era of the record low 0.1 percent rate ended in May.

The three percentage point increase has marked the most severe tightening since the RBA published a target cash rate in January 1990.

Australian banks are also required to assess a borrower’s ability to cope with a 300 basis point increase in variable mortgage rates.

But further rate hikes in 2023 would mean rate hikes beyond the existing mortgage stress test threshold, further limiting banks’ ability to lend.

Sydney has suffered the steepest declines since the market peaked in April, with median home prices falling 11.9 percent to $1.243 billion, CoreLogic data showed.