Despite the supply shortfall in the face of strong immigration, Shane Oliver chief economist at AMP is no longer willing to peddle the commonly held narrative that there’s an inevitability about continued house price rises.

With price growth slowing sharply, since reaching a record high in November, Oliver now expects a double dip fall in national average property prices.

Like a lot of economists, Oliver also believes the RBA’s last rate hike was over-cooked, especially given the lagged impact of 13 successive interest rates since 2022, which are only now starting to hit homeowners where they live.

“Home prices reached a record high in November, but price growth is slowing sharply suggesting the rebound may be coming to an end,” said Oliver.

“The combination of slowing home price growth since May (when it peaked at 1.2% month-on-month) and slowing auction clearance rates suggest that housing demand is struggling to keep up with listings.”

What the data is telling us

Oliver also points to CoreLogic home price data for November which saw a further slowing to 0.6% month on month, with Melbourne, Hobart, and Canberra prices down and Sydney price gains slowing to just 0.3% month on month.

Oliver also points to building approvals which remain weak and at around 165,000 annually are well down from the underlying housing demand of around 225,000 annually.

Equally unimpressive was growth in housing credit, which remains well down from recent boom time levels consistent with the rebound in home prices this year (coming on low volumes) which suggests a lack of conviction.

Outlook

Over the next 12 months, Oliver expects to see a further easing in inflation pressure and central banks moving to get off the brakes.

Despite Australian inflation being well above the circa 3% year-on-year rates that apply in the US, Canada and Europe, Oliver reminds the market that Australian inflation lagged on the way up and peaked three to six months later – partly reflecting the slower reopening from covid in Australia.

Given that it’s doing the same on the way down, he sees no reason to be alarmed that it’s currently higher.

“With monthly rises in November and December 2022 of 0.9% month on month and 1.5% month on month to drop out respectively in the next two months CPI releases, we are likely to see monthly inflation with a three in front of it by year end,” said Oliver.

Home prices to fall by around 5% in 2024

However, in light of sticky services inflation, still high recession risk, China worries and geopolitical risks he expects to see a few significant bumps along the way.

To reflect the lagged impact of the rise in bond yields on valuations, Oliver expects unlisted commercial property and infrastructure to deliver soft returns. Meantime, commercial property returns are likely to remain negative as “work from home” continues to hit space demand as leases expire.

“With the lagged impact of high interest rates appearing to get the upper hand again we now expect national average home prices to fall around 5% in 2024,” said Oliver.

“The supply shortfall should prevent a sharper fall and we expect a wide dispersion with prices still rising in Adelaide, Brisbane and Perth but sharper falls in Sydney and Melbourne.”

While highly unlikely, Oliver also notes a deep recession and sharply higher unemployment would risk pushing prices below their January 2023 low.