Riding the property rollercoaster until 2024? Here’s what’s in store

House prices in Sydney are expected to fall the most, albeit from a higher starting point, with the financial information service predicting values in Australia’s most populous city will plummet $204,543 to rest at $1,141,650 by the end of 2023.

The next biggest mover is Adelaide, where it is expected prices will drop by $166,182 — or 17 per cent — to $539,452, followed by a drop of $164,667 in Brisbane. 

Perth is the capital city expected to see the smallest value decline of $88,556 — or 12 per cent — to $498,468. 

RateCity research director Sally Tindall explained that this cycle is a “classic case of what goes up, can come down”. 

“However, the drops aren’t likely to come close to the huge property prices gains over the last couple of years.

“As interest rates rise, people are finding they can borrow less, because they have to pay more of their monthly salary to the bank in interest,” she added.

A bleak outlook for property owners is further compounded by predictions that such declining values would ultimately result in many borrowers finding themselves in “mortgage prison”, whereby they don’t own a decent enough portion of their property and, as such, are unable to refinance.

This is due to borrowers needing to own at least 20 per cent of their property in order to refinance if they wish to avoid being stung with costly lenders mortgage insurance by their new creditor. 

Moreover, borrowers with negative equity are likely to find lenders aren’t willing to take them on at all. 

These issues could prove particularly troublesome for first home buyers who capitalised on the previous federal government’s low deposit scheme, who RateCity warn are most likely to be impacted. 

According to the firm’s analysis, by the end of 2023, an individual who purchased a median-priced home in Sydney in December 2021 utilising a 10 per cent deposit could owe the bank 8 per cent more than their dwelling’s value by the end of next year if ANZ’s forecasts come to fruition. 

By the end of 2024, they could owe the bank almost exactly as much as the property would be worth.

A similar scenario is likely to occur for Melbournians who purchased a home in December 2021 with a 10 per cent deposit; they could end up owing the bank 4 per cent more than their home’s value by 2023’s conclusion. 

Ms Tindall offered some reprieve for home owners, stating that “being in mortgage prison isn’t a life sentence, but based on current property forecasts, it could take several years to get out”.

“If there’s a chance your equity could fall below 20 per cent in the coming months, do a health check on your mortgage now and consider your options before it’s too late,” she urged.

Another positive offered by RateCity is that ANZ predicts that the market is set to turn around in 2024; however, these future values will still be substantially lower than they are at present. 

Sydney and Melbourne are expected to see the biggest rise, at 6 per cent each, culminating in a $1,210,149 and $887,018 median house price, respectively, in December 2024. Conversely, Adelaide’s property prices are only expected to move up by 2 per cent to $550,241 in that same time. 

Ms Tindall believes that “an increase in demand from people on the hunt for a good deal could turn around the market sooner than expected”. 

“Investors could also come back to the market early if rents continue to rise at the same time property prices fall.

“People who bought at the peak shouldn’t let news of property prices drop get them down. What’s important is for them to keep their head down and their mortgage repayments up,” she concluded.