House prices expected to drop another 10% by end of 2024, Westpac says

Monday, 14 November 2022

The actual average interest rate people are paying on home loans will climb from 3.7% to 5.2% over the year from next month, Westpac forecasts.

Westpac believes house prices will fall by a further 10% from where they are now, by the end of 2024.

That would mean prices would decline by 20% from their peak at the end of last year, it said.

Taking into account inflation, that would translate into a 30% price drop that would take real house prices “back to the levels we saw prior to the pandemic”, it said.

The bank had previously forecast a 15% drop in nominal house prices, from peak to trough.

Finance Minister Grant Robertson faces questions about near-record-low unemployment, falling house prices and mortgage rate concerns.

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But it has revised its forecasts because of rising interest rates.

The bank expects the official cash rate will peak at 5% in June next year and stay at that level until September 2024.

The actual average mortgage rate people were paying on home loans would rise from 3.7% next month to 5.2% in December next year, it forecast.

Those averages take into account the fact that many borrowers on fixed-term loans will be protected from higher rates for at least part of that time.

Nevertheless, the resulting increase in debt-servicing costs would take a large bite out of many households’ disposable incomes, the bank said.

“Combined with the ongoing increases in living costs, that signals a significant squeeze on households’ spending power.”

Westpac estimated house prices have so far fallen by 11% from their peak. That means a house worth $1m last year would now be worth $890,000 on average.

A further 10% fall from current prices would knock off another $89,000, resulting in just under a 20% fall in value, when the price last year was used as the starting point.

Acting chief economist Michael Gordon said the scale of inflation had left the Reserve Bank on the back foot.

Economic growth will have stalled by the end of next year, according to the bank’s forecasts, he said.

“It’s much more likely that we would be predicting an outright recession were it not for the ongoing recovery in international tourism.”