Surge in house prices expected to slow

The Australian housing market has been at its busiest in many years and prices have risen sharply during Covid. 

The key drivers for this are super-low interest rates, various government incentives, a limited number of homes on the market, FOMO and the desire for sea-change and tree-change. 

Ah yes, given their inability to spend on overseas holidays and other luxuries, people build up larger deposits and make stronger bids.

Which led us to the positive 1.3% price growth in November, according to CoreLogic which boosted the annual growth rate to  22.2%. This added $126,700 on top of the median value of an Australian home. 

However, this is not the whole picture. 

CoreLogic also pointed out a slowdown trend since a peak growth in March (at 2.8%). Australia’s two biggest cities were driving the slowdown. Last month, Sydney and Melbourne saw slower price growth of 0.9% and 0.6% respectively. 

Further slowing or even price contraction next year

Dr Shane Oliver, chief economist at AMP Capital believes several factors are going to shake what has underpinned the growth of house prices over the last 14 consecutive months. 

1. Rising interest rates is a case of when not if

The clock is ticking for mortgage rates to rise from the record low rates we’ve all become accustomed to.

Bank economists hint at a rate rise towards the end of 2022 or into 2023. That’s why many banks have already increased their fixed mortgage rates

With interest rates rising on the horizon, we can expect house-buying demand to cool down in the coming months as borrowing costs rose, putting downward pressure on housing value. 

2. More houses are being put up on sale 

During lockdowns, a lot of vendors were cautious to list their homes, thinking there might not be much out there for them. So they waited for the lockdown to end to rush back into the market. 

In October, we saw a 32.7% rise in the number of new home listings compared to the previous month, according to Domain figures. 

Unsurprisingly, we are seeing weaker cl

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