Australian home prices are forecast to decline 14% from late 2022 through to the end of 2024 as a result of looming interest rate hikes, according to Westpac.  

In a research note, Westpac Chief Economist Bill Evans and Westpac Senior Economist Matthew Hassan said dwelling prices would post a net gain of just 2% during 2022.  

Home prices were then forecast to fall 7% in 2023 and a further 5% in 2024 before stabilising towards the end of that year.  

The updated outlook comes after the Westpac team revised its view that the Reserve Bank of Australia would begin its interest rate tightening cycle earlier and increase rates further.  

In January, the economists brought forward the timing of the first interest rate rise to August and extended the peak from 1.25% to 1.75%. 

The economists said housing would be “collateral” damage in the RBA’s efforts to keep inflation on target over the medium term. 

“With affordability already stretched in many markets, rate rises will have a direct impact on the borrowing capacity of buyers and their ability and willingness to sustain high prices,” the economists said. 

“The extraordinary surge in prices over the last year has seen affordability deteriorate to be near previous lows in 2010 and 2007 – both of these earlier benchmarks were at times when the average discounted variable mortgage rate was materially higher than it is now (around 7% and 9% respectively versus nearer to 3% today).” 

Under their previous interest rate scenario, the Westpac team had expected macro-prudential tightening and rate increases to drive a gradual move into a correction phase for Australia’s housing market.  

Prices were forecast to lift by 8% in the first half of 2022, before flattening out in the second half prior to falls of 5% in both 2023 and 2024. 

The economists said Sydney, Melbourne and Hobart were expected to see earlier and more pronounced price corrections, while Brisbane and Adelaide were expected to see milder price cycles. 

They said the correction would mean that home prices at the end of 2024 would be on par with their level in April last year.