House Prices to Fall 10% – And Other Nonsense

December 6, 2021
By: Dr. Andrew Wilson

There is no surprise that the housing markets generally have recorded extraordinary prices growth this year driven by low-interest rates and rebound demand reflecting the interruptions to activity over recent years.

Sydney and Melbourne have led the charge over 2021, but prices growth – while still strong, has moderated over recent months. Most other capitals however continue to report boomtime results.






Rising affordability barriers and the satisfaction of pent-up demand will continue to act to moderate buyer activity – particularly in Sydney and Melbourne.

Prices growth – although certainly still positive – will be significantly lower over 2022 compared to the remarkable 2021 results.

Recent predictions of 10% home price falls over 2023 based on forecasts of sharp increases in official interest rates are clearly non-sensical.

Since 1987, Australia’s capital city housing market has experienced only three years where home prices have fallen – 2008, 2011, and 2018.

And the price declines were clearly modest, falling by just 4.0%, 4.1%, and 5.1% Higher interest rates were the catalyst for home price declines with official rates increasing from 5.5% to 7.25% between 2006 and 2008 and up from 3.0% to 4.75% between 2009 and 2011.

Price declines over 2018 reflected an APRA enacted bank credit squeeze – particularly directed towards investors, that resulted in higher mortgage rates and restrictive lending conditions.

The prospect of similar sustained increases in official interest rates to drive down home prices is currently clearly fanciful.

The RBA has recently yet again stipulated that “Given the latest data and forecasts, the central scenario for the economy continued to be consistent with the cash rate remaining at its current level until 2024”

For wages growth to meet the RBA requirements for a rate rise by November 2022 – the date predicted by those forecasting record price falls in 2023 – would require an unprecedented surge in incomes over the coming 

With wages growth still at subdued levels despite the post-lockdown recovery and the jobless rate surging to a 7-month high, the prospect of wages growth quickly returning to the boomtime levels last experienced more than a decade ago are remote – at best.

Particularly with the recent government announcement of a flood of 200,000 migrants set to enter Australia over the short-term providing sharply increased demand for currently available jobs.

And of course, a quick return to high migration levels will again place upward pressure on home prices in our still undersupplied housing markets.



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