Australian property prices will not fall as much as they have gained in the past 12 months according to industry experts, despite a new global study saying the market is one of the most at risk in the world of dropping.
New analysis from Bloomberg Economics shows 19 OECD countries have high property prices compared to rents and income, with those ratios higher than what they were ahead of the Global Financial Crisis.
Australia is the fourth most likely country to experience property price falls according to the data.
New Zealand topped the list, followed by the Czech Republic and Hungary, while Australia was deemed more at risk that Canada, Portugal and the US.
Real Estate Institute of Australia President Hayden Groves said he didn’t think Australia was at the same level of risk as stated in Bloomberg’s analysis.
He said markets such as those in Hobart and Sydney were “heavily inflated” and would see price drops but they would not equal the gains over the past 12 to 18 months.
“Obviously with this environment of high inflation and rising interest rates, there will be some adjustment in those markets,” Mr Groves said.
“But they’re not going to lose what they gained in the last 12 months, so while they might have grown 30-odd per cent in the last 12 months they’re not going to come back 30 per cent in the next 12 months.”
Mr Groves said unless buyers on Australia’s east coast purchased in the past six months they’d remain “reasonably protected” against moderate falls due to the high inflation and rising interest rate environment.
“I think most people, once interest rates start to stabilise in future months, will hang in and hang on and protect the growth they’ve experienced in their assets for as long as they can,” he said.
“I think that will moderate any falls in those markets. So we might see falls as high as eight to 10 per cent, but it’s certainly not going to come back 30 per cent.”
Mr Groves said it was also important to remember that while interest rates are rising, they’re coming off the lowest base in history and the super low cash rate was only ever intended to be a short-term economic fix.
“We tend to forget that interest rates were at emergency setting levels,” he said.
“I think a lot of consumers perhaps saw it as the new normal when it was never going to be that.”
Mr Groves said the Reserve Bank of Australia had forecast interest rates increasing to between the two to three per cent range by June 2023 before stabilising and once that happened the property market would also even out.
“I think transaction levels will be the main story,” he said.
“As part of this process I think transaction levels will start to slow where people will wait and see what the washout will be.
“And then once interest rates rises stop going up and stabilise, then I think the market will return to a relatively normal market.”
