Why Australian house prices may soon start FALLING as disturbing statistic hints at a coming plunge and a major bank sounds a warning about 2022 By Stephen Johnson

• Just 35 per cent of consumers regarded now as a good time to buy real estate • Big plunge from December 2020 when 67 per cent excited about property • Finder survey found affordability pressures were making people pessimistic • Westpac expecting price growth slowdown in 2022 and price falls from 2023
Why Australian house prices may soon start FALLING as disturbing statistic hints at a coming plunge and a major bank sounds a warning about 2022     By Stephen Johnson
Australia's second biggest bank has now raised two to five-year fixed rate loans

House prices could soon start falling as buyer sentiment sours toward real estate investment. 

New figures from Finder showed only a third of people believed now is a good time to buy and the vast majority of potential buyers are turned off at the thought. 

The data comes after the fastest surge in property values in more than three decades, sparking fears of a property slowdown from next year. 

Over the past 12 months, real estate values across Australia climbed by 20.3 per cent, the steepest annual pace since June 1989, sparking tighter lending rules and fixed-rate mortgage increases to try to prevent a speculative bubble. 

In Sydney, median house prices have climbed  by an even more dramatic 28.9 per cent in the year to September to an even more unaffordable $1.312million, CoreLogic data showed. 

Little wonder just 35 per cent of people in October 2021 regarded now as a good time to buy, an online Finder survey of 1,015 consumers found. 

The 35 per cent figure represented a sharp fall from 67 per cent as recently as December last year, shortly after the Reserve Bank of Australia cut the cash rate to a record-low of 0.1 per cent. 

The market began to recover from the 2020 lockdowns as the big banks offered fixed mortgage rates of just 2 per cent. 

But Finder's head of consumer research Graham Cooke said the fear of missing out was now being replaced with concerns about affordability as prices kept rising despite lockdowns in Sydney and Melbourne. 

'Extended lockdowns and border closures have done little to curb price growth this year,' he said. 

'Rock-bottom interest rates and the property boom instilled a fear of missing out among prospective home buyers. 

'As we emerge from those lockdowns, a record number of Australians are now pessimistic that now is the time to buy.' 

Westpac economists Bill Evans and Matthew Hassan said property price growth was likely to start slowing down next year 

We still expect momentum to slow considerably through 2022 as stretched affordability combines with macro-prudential tightening measures and, later in the year, the anticipation that the Reserve Bank will begin a tightening cycle in early 2023 begins to weigh on confidence,' they said. 

'The combination of high levels of new building and slow population-driven demand may also weigh on some sub-markets.' 

A Westpac analysis of debt-to-income ratios showed mortgage pressures in Sydney, Melbourne and Brisbane were comparable with 1989 when interest rates were at 17 per cent. 

'Even with the sustained move lower in mortgage interest rates affordability is becoming very stretched at current price levels with the three major eastern capital city markets back near the extremes seen in 2017, 2018, 2004 and 1989,' the bank said. 

Australia's mid-point price for a house or unit stood at $674,848 in September, following a 20.3 per cent annual rise. 

For the first time ever, Australians on an average, full-time salary of $90,329 would now be in mortgage stress where they would struggle to meet their monthly repayments on a typical home. 

The Australian Prudential Regulation Authority, the banking regulator, regards a debt-to-income ratio of more than six as potentially dangerous. 

APRA is now requiring lenders to assess the ability of borrowers to cope with a 3 percentage point rise in mortgage rates. 

Should interest rates rise by 3 percentage points a borrower paying off a $540,000 loan, with a 20 per cent deposit to buy a typical $675,000 Australian home, would see their monthly mortgage repayments climb by $914 from $2,048 to $2,962. 

Westpac expected Sydney property prices to rise to by 27 per cent in 2021 before dramatically slowing a 6 per cent in 2022, followed by a 6 per cent drop in 2023. 

It forecast Melbourne real estate values increasing by 18 per cent in 2021 before slowing to 8 per cent in 2022 and falling by 6 per cent in 2023. 

Australia wide, property prices were expected to climb by 22 per cent in 2021 before slowing to 8 per cent in 2022 and falling by 5 per cent in 2023. 

Investors had remained cautious during the boom, making up just 25 per cent of the market, by value, during the past year. 

Digital Finance Analytics principal Martin North is predicting a 20 per cent drop in house prices in parts of south-west Sydney, like Liverpool and Campbelltown, and Werribee in Melbourne's west, because of these areas having higher mortgage stress. 

While the Reserve Bank has vowed to keep the cash rate on hold until at least 2024, the big banks are continuing to increase their fixed mortgage rates. 

Westpac on Tuesday raised its fixed two, three, four and five-year rates - all by 10 basis points. 

Five-year fixed rates are now at 2.89 per cent for owner-occupiers paying off principal and interest. 

On Friday, the Commonwealth Bank increased its two, three and four-year fixed rate loans. 

RateCity research director Sally Tindall said the banks were already expecting their funding costs to rise. 

'While the RBA is insistent the next cash rate hike won't be until at least 2024, the banks are anticipating an increase. 

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