Property prices are set to fall 7% to 10% this year - but it’s not quite as scary as it sounds

PropTrack’s Property Market Outlook Report, released today, predicts some cities will see sharper price falls than others, with a few capitals likely to hold up relatively well.

Cameron Kusher, director of economic research at PropTrack and the report’s author, based his forecast on expectations the Reserve Bank will lift interest rates two more times by a total of 50 basis points, including one hike today.

After another increase, when the cash rate hits 3.6%, Mr Kusher anticipates the RBA will then leave rates on hold for the rest of the year.

“Aggressive interest rate hikes designed to combat surging inflation have driven shifting housing market conditions, and price falls are likely to continue and accelerate in 2023,” he said.

A forecast for property price movements in 2023 has been released. Picture: Getty

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At a national level, home prices slipped 2.3% in total in 2022 and he expects further declines of up to 10% by the year’s end.

Prices are forecast to fall in all capital cities in 2023, Mr Kusher said.

The largest declines are expected in Sydney, Brisbane, and Canberra, with each tipped to see drops of between 8% and 11%.

Melbourne and Hobart are likely to each see home prices fall by between 7% and 10%, Mr Kusher added.

Some capital city housing markets will fare better than others. Picture: Getty

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The cities forecast to see the most modest declines are Adelaide and Darwin, each with 3% to 6% falls, and Perth with an expected drop of 5% to 8%.

However, even if prices fall at the highest range of the forecast, national home values will still be a staggering 18% higher than they were pre-Covid, he said.

“National property prices increased by 34.7% from the start of the pandemic in March 2020 to their recent peak in March 2022 – one of the fastest periods of price growth on-record.

“Since the peak in March 2022, national property prices had fallen 4.3%. So, a fall of up to 10% this year would result in cumulative declines of close to 15%.

There will likely also be differences in the performance of dwelling types, with demand for units likely to remain elevated, seeing prices hold up better than those for houses.

Affordability is one driver, with the price premium between houses and units reaching 84% in Sydney, 55% in Melbourne, and 58% in Brisbane.

And while inner-city living became less attractive during Covid lockdowns and restrictions, life is now largely back to normal, and Mr Kusher noted “the trend is already reversing”.

“The strength of the rental market may also drive interest from investors in inner-city and middle-ring units.”

In addition, long-term underlying growth drivers for property broadly remain solid, including a strong labour market, historically low unemployment, and a strong uptick in migration to Australia.