ANZ predicts house price growth will slow in 2022 and then fall in 2023, as affordability problems and interest rates bite

ANZ predicts house price growth will slow in 2022 and then fall in 2023, as affordability problems and interest rates bite
Brent Lewin, Bloomberg via Getty Images
  • ANZ has declared housing price growth will slow to 6% in 2022 and dip 4% in 2023.
  • The bank suggests rising interest rates, prudential regulation, and sheer unaffordability will depress prices.
  • Its interest rate projection cuts against the Reserve Bank of Australia, which does not expect to push the cash rate before 2024.
  • Visit Business Insider Australia’s homepage for more stories.

ANZ has called a peak to the booming Australian housing market, declaring that prices will continue to grow through 2022 before sheer unaffordability, regulatory action, and mortgage interest rates stymie demand in 2023.

In its latest update, revealed Thursday, ANZ stated house price growth will slow over the next year to 6%, after median house prices boomed some 21.9% over the year to September.

The bank suggested the daunting cost of buying a home will deter many Australians desperate to enter the market.

Macroprudential tightening, like the Australian Prudential Regulation Authority’s October decision to ensure new borrowers can service a mortgage if interest rates jump 3%, up from 2.5%, will put also brake on lending, the bank added.

Breaking with the Reserve Bank of Australia, ANZ also believes the underlying cash rate will also lift in mid-2023, forcing retail banks to raise their own interest rates and passing those costs on to consumers.

Those factors will eventually cause house prices to dip 4% in 2023, ANZ suggested.

That interest rate prediction is at odds with the central bank, which insists cash rate increases are unlikely any time before 2024.

The RBA states it will only lift the rate from 0.10% once inflation sustainably hits its 2% to 3% target band, with that inflation driven by wage growth of at least 3%.

The Australian Bureau of Statistics states inflation actually hit 2.1% in the September quarter, which retail banks, including ANZ, have taken as evidence of a strengthening economy.

In turn, major players in Australia’s banking sector is expecting the underlying cash rate to lift well ahead of the RBA’s central scenario, pushing up mortgage rates and dissuading some would-be homebuyers.

ANZ competitors including Commonwealth Bank and Westpac have already bumped their fixed rate home loan interest rates.

But RBA governor Philip Lowe on Tuesday ruled out a cash rate hike in 2022, saying that lacklustre wage growth and an uncertain economic recovery from COVID-19 stand in the way.

“The latest data and forecasts do not warrant an increase in the cash rate in 2022,” Lowe told a meeting of the Australian Business Economists.

“The economy and inflation would have to turn out very differently from our central scenario for the board to consider an increase in interest rates next year.”

On Wednesday, ANZ senior economist Felicity Emmett explained why her bank thinks differently.

“We think that inflation will pick up just a little bit more quickly, and wages will pick up a bit more quickly, and that will be enough to meet the criteria that the RBA has very clearly laid out,” she told The Urban Developer.

ANZ’s prediction comes despite the widely-held expectation that housing demand will only increase once Australia’s international border reopens, welcoming new owner-occupiers and investors back to the country.