Strap yourself in for more home price falls ahead. But don’t be surprised if outcomes depart from predictions. When it comes to home values, it’s anyone’s guess.
Of all the variables in our economy that I hate to predict, forecasting future movements in house prices would be at the top of my list.
On the supply side, the supply of new homes is heavily influenced by the zoning, regulation and taxation decisions of governments.On the demand side, population growth and wages growth are less obviously driven by government decisions, but by far the biggest factor influencing the demand for housing – how much people have to spend – is the cost of borrowing, which is set almost entirely by the Reserve Bank.
As a general rule of thumb, I reckon you can take the high point of your property’s valuation during COVID – when rates were at almost zero per cent - and assume that will represent something of a high watermark for a while to come. That’s pretty obvious. But another less obvious factor dampening borrowing capacity and home prices currently is the impact general inflation on people’s borrowing capacity.
But inflate those living expenses by the full latest inflation figure of 7.3 per cent, and that brings them to $64,380, leaving you only $35,620 surplus cash flow to service your loan – assuming no change to your income. Only time will tell, of course. I suspect the Reserve’s inclination will be to talk tough, but err on the side of caution in raising rates much further now, as opposed to jacking rates up only to have to cut them by years end. A major ‘x-factor’ remains how households on ultra-low, sub-2 per cent fixed rates respond as the bulk roll off onto rates closer to 6 per cent throughout this year.
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