House prices in Australia are expected to fall 10% next year on expectations of a rising exchange rate.
NAB Group Chief Economist Alan Oster said while the housing market has remained strong despite pandemic-related disruptions, prices have risen sharply in capitals.
"Price strength was widespread, with even the slowest growing capitals seeing prices rising well above double digits for the year," he said.
Over the past year, Hobart and Brisbane led the gains, although Sydney and Adelaide were not far behind with more than 20% throughout the year.
While Perth, Darwin and Melbourne lag behind in terms of growth, they are still making gains of over 11%.
Mr. Oster said two factors are likely to initiate a price correction: affordability constraints and rising mortgage rates.
"This would offset the gains seen in early 2022, so overall prices end the year roughly flat," he said.
Based on forecasts, average capital growth this year is expected to be 2.7%, with Brisbane and Hobart still expected to lead with annual growth above 4%.
"NAB continues to see the RBA begin to normalize rates from November, with the cash rate target raised by 65 basis points from 0.1% by February 2023 "said Mr. Oster.
"From here we see a steady series of increases over 2023 and 2024."
Mr. Oster said the rate hikes would drive prices down by up to 10% per year in 2023.
The decline is expected to be apparent in all state capitals, with Sydney and Melbourne likely seeing the largest drop of 11.4%.
"We view this as a relatively orderly decline, and it's important to remember that this correction comes after a very strong price rally over the past year," Oster said.
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