House prices to crash by 10%
Gareth Aird, the head of economics at the Commonwealth Bank of Australia, has predicted a 10% correction for Australian house prices when the Reserve bank increases the cash rate to 1.25% in the 3rd quarter of 2023.
There is arguably no housing supply shortage in Australia. Instead, record low-interest rates have fuelled demand for sort after geographical locations within the country.
House prices are determined by how much money you make vs the interest on the money you borrow.
Wages have increased (2.4% in 2021) whilst real inflation has risen at a similar rate. So real wage growth is negligible. The RBA looks to raise the cash rate in November 2022. The scenario has income staying the same and the cost to buy property going up.
In theory, this should place downward pressure on house prices. Economic predictions are often not accurate evidenced at the start of the pandemic. The consensus among economists was for house prices to plummet. Instead, we witnessed an incredible boom. Even Gareth Aird’s prediction back in September 2020 was off the mark.