Home values ​​fall as interest rates and cost of living squeeze buyers

RBA Governor Philip Lowe said last week that the board would consider an increase of 0.25 or 0.5 percentage points at its next meeting on Tuesday, and further increases were expected throughout. throughout the year as the bank worked to bring interest rates back to “normal” levels. inflation down.

Lenders responded by raising mortgage rates and Commonwealth Bank on Thursday unveiled a 1.4 percentage point increase in all its fixed-rate home loans.

RateCity director of research Sally Tindall said other big lenders are likely to follow.

“The bank is reacting to the rising cost of fixed rate funding and a market that refuses to believe that the RBA will stop raising the cash rate to around 2.50%,” she said.

“We expect other banks to follow in CBA’s footsteps. Westpac and NAB fixed rates are now, in many cases, more than a percentage point lower. It’s only a matter of time before these banks raise their fixed rates again.

Property prices are expected to continue falling in 2023 as the RBA continues to raise rates and lenders pass the increases on to borrowers.

The NAB residential real estate survey, released on Thursday, found that housing market confidence had continued to weaken.

Economists at the bank now expect “a bigger peak-to-trough fall” in home values ​​as the RBA moves faster, with Sydney and Melbourne leading the declines. They forecast house prices in the capital to fall by 3.7% by the end of 2022 and another 14% in 2023.

But Lawless said even a drop to the upper end of the forecast wouldn’t negatively affect most owners.

“Nationally, a 15% drop brings the market back to where it was around April of last year, reversing just over 12 months of growth; whereas a 20% drop would bring our index back to where it was in January 2021 and very close to where it was at the end of 2017,” he said.

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“So even with a fairly bearish forecast of a 20% drop, most people who have owned their property for more than 18 months will still be in a positive position relative to the purchase price.”

The median home value in Sydney is now $1.1 million, according to CoreLogic, and Canberra is the second most expensive capital with a median value of $937,600. In Melbourne, the median value is $798,200, while the combined median value for regional housing is $600,400.

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