Australian property prices are expected to decline between 7% and 10% in 2023, following a 2.3% decline in property prices in 2022.

PropTrack has forecast property prices to decline across all capital cities this year, with the largest falls expected in Sydney, Brisbane, Canberra, Melbourne and Hobart.

Adelaide and Darwin were expected to hold up the best with prices declining between 3% and 6%, while Perth was expected to dip between 5% and 8%.

The forecast was based on the cash rate rising to 3.6% in 2023 and remaining on hold throughout the year.

PropTrack Director of Economic Research Cameron Kusher said as interest rates had risen faster and higher than expected, property prices had fallen, along with sales volumes.

“At the beginning of May 2022, official interest rates were sitting at 0.1%,” Kusher said.

“By the end of 2022, the cash rate had increased to 3.1% – the highest it has been since November 2012 – due to the fastest and most substantial interest rate tightening cycle in many decades. While we don’t expect interest rates to rise as fast and high as they did in 2022, we are expecting some additional increases early on in 2023.

“We expect two 25 basis point cash rate hikes from the Reserve Bank of Australia, one to be delivered today. Following this, we expect a period of interest rate stability. However, an interest rate cut late in 2023 is a very real possibility depending on how the economy performs.

Kusher said property price falls were likely to continue and accelerate in 2023, as borrowing costs continued to rise and the subsequent reduction in borrowing capacities.

“We’re expecting prices to decline by up to 10% nationally in 2023, with greater falls expected in the larger capital cities. Demand for regional properties is also likely to slow and, given prices have seen stronger growth in these areas than within the capital cities, we expect to see price falls in these markets too,” he said.

“After exceptional price growth throughout the pandemic, last year’s changing market conditions saw prices fall 2.3%. With prices down 4.3% from their peak, a fall of up to 10% this year would result in cumulative declines of close to 15% since the start of the downturn.

“Importantly, this fall would represent a decline of around half that of the decline in borrowing capacities and would still have national home prices sitting above their pre-pandemic levels. The strong labour market, with unemployment the lowest it has been in decades and wage growth accelerating, may also support the housing market.”