06 Oct, 2022
The value of the median-priced house in Sydney could drop by a further $175,087 by the end of next year, down to $1.10 million, based on new property price forecasts out today from NAB.
RateCity.com.au analysis of these forecasts shows the median Sydney house price could fall to $1,108,415 by December 2023. This would be the largest drop across all capital cities in dollar terms.
In Melbourne, the median house price is estimated to fall by $156,367 from now until the end of next year to $780,764.
These figures are based on CoreLogic’s adjusted median values, applying NAB’s property price forecasts released today.
Median house prices – how far could they fall by the end of 2023?
Source: RateCity.com.au. NAB property price forecasts, CoreLogic index-adjusted median values, 31 December 2021 and 31 September 2022. Assumes house prices fall in line with dwelling forecasts.
Falling property prices could push some borrowers into ‘mortgage prison’
Falling property prices have the capacity to force some borrowers into ‘mortgage prison’ where they are unable to refinance.
Borrowers who bought recently with a small deposit could find their equity (the amount of the home they own) falls below 20 per cent and remains there for a number of years, even if they make their standard principal and interest repayments.
This would make it costly to switch banks as they are likely to have to pay lenders mortgage insurance, a cost that can run into the tens of thousands of dollars and could easily negate savings made from refinancing. In some cases, lenders might decide not to take them on at all due to their equity position.
People most likely to fall in this category are those who borrowed at the peak of house prices in their area, with small deposits such as first home buyers.
RateCity.com.au analysis shows if someone bought a median-priced house in Sydney in June 2021 with a 5 per cent deposit, they could owe the bank 5 per cent more than their home is worth by the end of 2023, if NAB property price forecasts are realised (LVR of 105 per cent).
If that person bought their house with a 20 per cent deposit, they would own just 11 per cent of the property by the end of next year – rendering them in mortgage prison, unless they pay lenders mortgage insurance (or have it waived).
This is despite the fact they would have been paying down their debt for two years.
Sydney: what percentage of your property you own
Source: RateCity.com.au. CoreLogic, NAB.
Borrowers in Melbourne could find themselves in a similar position. Someone who bought a median-priced house in June 2021, with a 5 per cent deposit, could owe the bank 10 per cent more than their home is worth by the end of next year (LVR of 110 per cent).
Melbourne: what percentage of your property you own
Source: RateCity.com.au. CoreLogic, NAB.
RateCity.com.au research director, Sally Tindall, said: “Australia’s property market could be in for a bumpy ride over the next year if NAB’s new forecasts are realised.”
“Every time the RBA hikes rates, the maximum amount people can borrow from the bank takes a hit, and with a number of rate hikes potentially waiting in the wings, the drops in property prices are likely to continue,” she said.
“While some buyers’ budgets are shrinking, other buyers are tapping out altogether, in the hope of finding a cheaper deal down the track.
“In the boom, a ‘fear of missing out’ drove property prices higher. Now a ‘fear of getting in’, is having the reverse effect.
“Falling property prices are typically good news for would-be first home buyers looking for a window in, however, with interest rates still on the rise, it’s not going to be a walk in the park. They’ll be paying more in interest for the money they borrow against what is an uncertain backdrop.
“Anyone who bought at the peak should put the property news pages in the bottom drawer and focus on paying down their debt.
“Borrowers who can’t refinance their loan because of their equity position should still negotiate with their lender for a better rate. This will help them make their monthly repayments, and potentially extra so they can break out of mortgage prison faster,” she said.
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This article was reviewed by Research Director Sally Tindall before it was published as part of RateCity's Fact Check process.
Head Of Public Relations
Laine Gordon is the Head of Public Relations at RateCity and an experienced journalist and research specialist. With a background in news and feature writing, covering finance, media and even food (a passion of hers) at Reed Elsevier publications, Laine brings almost two decades of experience to the team. Having covered major areas of interest to the general public from hip pocket issues to rising and falling interest rates and the impact to mortgages, credit and saving in Australia, she is passionate about researching and telling people’s stories to help others make better decisions about their own finances.