Aus housing: a soft landing

In 2023, ANZ Research sees prices falling modestly as higher mortgage rates start to bite. In the context of the 30 per cent-plus rise in prices since October 2020, the 6 per cent decline forecast for 2023 is a very modest correction.

"Higher inflation and a tightening labour market are likely to push the RBA to begin lifting the cash rate in the third quarter of 2022.”

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2022 off to a solid start

Prices rose a solid 0.8 per cent month-on-month in January although this is well down from the peak monthly growth of +2.6 per cent recorded in March. Leading indicators remain positive.

Auction clearance rates have picked up a little to the low 70s from an average of 63 per cent in early December.

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Housing finance for both investors and owner-occupiers turned up in October and November and sentiment about house prices has also lifted.

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Price performance across the capital cities continues to diverge with Brisbane (+7.9 per cent three months-on-three months) outstripping the larger capitals, Sydney (+2.4 per cent) and Melbourne (+0.4 per cent).

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Tighter financial conditions will be a headwind in 2022

It’s unlikely the renewed uptrend in housing finance will be sustained.

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Three-year fixed-rate mortgages are up more than 100 basis points and while heightened competition has driven variable rates lower, overall average lending rates are now heading higher.

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The Australian Prudential Regulatory Authority’s (APRA) macroprudential tightening in November last year is another factor adding to tighter financial conditions.

Interest rates will be key

The path of interest rates will be critical to developments in the housing sector. Higher inflation and a tightening labour market are likely to push the Reserve Bank of Australia (RBA) to begin lifting the cash rate in the third quarter of 2022.

ANZ Research expects a series of rate hikes to bring the cash rate up to 2 per cent by the end of 2023.

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While rising immigration and cashed up households will provide some offset, the lift in mortgage rates will slow house price growth in 2022 and turn prices down in 2023.

Felicity Emmett and Adelaide Timbrell at Senior Economists at ANZ