A market analytics expert is predicting house prices in Australia’s biggest cities will fall sharply next year, as value surges far outpace wage increases.
Kunal Sawhney, founder and CEO of market analytics group Kalkine, said Australia was on the verge of the ‘biggest ever’ property boom that would turn bad – predicting a 12 per cent plunge in Sydney and Melbourne house prices in 2022.
‘An unsustainable surge in house prices relative to income is more likely to trigger a pronounced, eventual asset price correction,’ he told Daily Mail Australia.
‘We can see fears looming over a potential burst in the property bubble.’
A market analytics expert is predicting house prices in Australia’s biggest cities will fall sharply next year, as values far outpace wage increases. Pictured are western Sydney houses
Since November, Sydney’s median house price has climbed by 11 per cent to $1.112million, fuelled by banks offering fixed mortgage rates of less than 2 per cent.
A 12 per cent plunge would see Sydney’s median house price, at current levels, plummet by $133,520 as Melbourne’s equivalent value fell by $103,091 from $859,097.
Last month, Australian property prices surged by 2.8 per cent, marking the fastest monthly growth pace since October 1988, CoreLogic data showed.
That rate of increase in house and apartment prices in just one month was double the 1.4 per cent increase in Australian wages in all of 2020.
‘Although a lower interest rate regime reduces the debt-servicing load, lower income levels tend to have a profound impact on the debt payment,’ Mr Sawhney said, adding cheap debt had led to a ‘worrisome pile of household debt.’
Mr Sawhney predicted the Australian Prudential Regulation Authority, the banking regulator, would have to tighten lending deposit rules next year to cool an overheating market.
Under this scenario, Sydney and Melbourne house prices would plunge by up to 12 per cent in 2022 as values in the other state capitals Brisbane, Adelaide and Perth fell by 6 per cent.
Canberra and Hobart were tipped to still record some growth.
Last month, Australian property prices surged by 2.8 per cent, marking the fastest monthly growth pace since October 1988, CoreLogic data showed. That rate of increase in house and apartment prices in just one month was double the 1.4 per cent increase in Australian wages in all of 2020. Pictured is a stock image
‘We cannot neglect that there has been a build-up of risks associated with the solid growth in property space,’ Mr Sawhney said.
‘In case the regulator plans to intervene this time, let’s say in 2022, we may see an annual dip of 10 to 12 per cent across major capital cities of Sydney and Melbourne.’
During the last APRA crackdown on investor loans, Sydney’s median house price dived by 15 per cent between 2017 and 2019.
A collapse in property prices would spark a situation known as negative equity where borrowers owe the bank more than their property is worth.
‘Amid this scenario, there is a high possibility of panic-driven asset sales that can lead to a cascading effect on the property prices,’ Mr Sawhney said.
The Reserve Bank of Australia has vowed to keep the cash rate on hold at a record low of 0.1 per cent until at least 2024 but there is nothing to stop the major banks from increasing their variable mortgage rates.
Kunal Sawhney, founder and CEO of market analytics group Kalkine, predicted the Australian Prudential Regulation Authority, the banking regulator, would have to tighten lending deposit rules next year to cool an overheating market. Pictured is an auction at Paddington in Sydney
‘The potential tightening of lending laws by APRA given the current pressure or a sudden uptick in mortgage rates can also induce a sharp correction in house prices, threatening economic and financial stability,’ Mr Sawhney said.
Westpac, Australia’s second biggest bank, this week updated its forecasts to have Sydney and Melbourne property prices dropping by 1 per cent in 2023.
Sydney house prices were expected to grow by 16 per cent in 2021 but slow to just 5 per cent in 2022.
Despite Australia’s rebound from the Covid recession, Australian wages growth was not expected to rebound, as some sectors like hospitality and tourism continued to struggle with the withdrawal of JobKeeper wage subsidies.
CommSec senior economist Ryan Felsman told Daily Mail Australia: ‘There’s a long way to go.’
Australia’s wage price index hasn’t been above the 3 per cent mark since early 2013.