ANZ increases forecast of house price fall, predicts drop of 15%

ANZ's economists expect house prices to fall further because inflation is higher than expected.

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ANZ’s economists expect house prices to fall further because inflation is higher than expected.

ANZ has increased its forecast for house price falls to a drop of 15%, from 12% previously.

it said higher-than-expected inflation in the second quarter would mean interest rates would have to rise further than they might otherwise, which would push house prices down.

The Real Estate Institute’s house price index has already fallen 6.6% from its peak in November 2021.

“Meanwhile, indicators of market tightness continue to ease,” ANZ economists said.

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“New listings are back to their typical seasonal pattern but softening sales mean housing inventories are rising. Inventories are now at a six-year high, and trending higher.

“Unsurprisingly, the number of days it is taking to sell a house is also trending higher. Combine slowing population growth as negative net migration threatsens to continue for a while yet, with a still-respectable level of residential investment (despite labor and materials shortages), and the resulting supply-demand balance suggests that when the market does find a floor, there could be significant limits to how much prices will lift again as the market recovers.”

They said the indicators still suggested house prices were on an “easing trajectory” and house prices would fall until mid-2023.

“And it’s not just the data telling us this; anecdotes from the coal face currently seem unified in suggesting the housing market is firmly in retreat. That said, recent data hasn’t been surprising us to the downside, relative to our forecasts. In fact, the average pace of monthly house price declines since November (around 1% per month), has been slightly smaller than the 1.1% to 1.2% declines we had pencilled in.

“Given the ridiculously high starting point for house prices, we’d say the correction to date has been relatively orderly.”


Property investor Matthew Ryan provides his predictions for the housing market as prices fall and auction clearance rates drop. Video first published April 4, 2022.

But they warned that headwinds had picked up lately, suggesting more of a decline to come than previously suggested.

The most important recent data for the housing market was the consumer price index out this month, which showed an annual increase of 7.3%.

“We now expect the Reserve Bank will continue to deliver 50 basis point hikes all the way to a peak of 4% by the end of the year. That’s a full 50 basis points higher than our previous forecast OCR peak.

“All else equal, (and looking through the ebbs and flows of wholesale rates markets), this means higher-than-otherwise mortgage rates, and therefore weaker-than-otherwise housing demand. Overall, we think our OCR call change is worth another three percentage points or so in terms of how much house prices are likely to fall, if it comes to pass, and are accordingly now forecasting a peak to trough decline of 15%.

“But as we’ve outlined numerous times before, house price forecasts are riddled with uncertainty at the best of times. Given the added degree of uncertainty around the economy right now, as interest rates go higher, inflation remains on a tear, and borders reopen, it’s fair to say the housing market outlook could easily experience a sharper correction than we are forecasting.”

They said while a 15% fall in prices might sound a lot, it was coming off a gain of about 45% through the pandemic.

“It can therefore be interpreted as very much a soft landing. Our forecast indicates that prices will trough almost 25% above their pre-pandemic level. We continue to see downside risk to our forecast but it would take a sharper deterioration in the labor market than we are expecting.”

The report acknowledged that it was tough on first-home buyers, who were seeing the value of their properties fall at the same time their interest costs rose.

ANZ’s economists expect house prices to fall at the same time as household incomes increase.

That would reduce the house price-to-income ratio from almost 9 to 6.75. “That’s better, but still higher than the pre-pandemic read of around 6.5 times (which was already considered unaffordable).”

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