Property prices in Australia may be as much as 50 per cent above what an average household can afford as interest rates rise, a global analysis has revealed while warning the market is at risk of a major crash as interest rates are pushed up to bring inflation under control.
Prices have fallen in Sydney, Melbourne, Hobart and Canberra, with most analysts expecting prices to edge further down during 2023. According to the IMF, this meant the Australian market was at particular risk of a “sizeable” fall in prices as the Reserve Bank pushed up interest rates. Interest rates as a proportion of household income reached 6 per cent in September after falling to a 30-year low of 4.4 per cent at the end of March.
“High mortgage rates resulting from monetary policy tightening also deteriorate housing affordability as financing and debt servicing costs rise. A higher lending rate also negatively affects construction of housing.”.