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Era of through-the-roof house prices in Australia set to get rid of: Reuters poll

Residential properties line the Sydney suburb of Birchgrove in Australia, August 16, 2017. REUTERS/Steven Saphore

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BENGALURU, Sept 5 (Reuters) – Australian house prices will fall sharply this season and then as rising mortgage rates and cost of living pressures drag on demand, a Reuters poll found, but also for many people investing in a home will still remain far out of reach.

Pandemic-related stimulus and cheap loans have nearly doubled house prices because the 2007-09 global financial meltdown, increasing homeowners’ wealth, but which has also kept millennials and first-time homebuyers off the house ladder.

After rising about one-third through the pandemic, home prices nationally sank 1.6% in July. It had been the biggest monthly drop since 1983 and dragged annual price growth right down to 4.7%, from the peak above 21% late this past year.

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Average home prices were likely to decline 6.5% this season, in accordance with an Aug 15-Sept. 2 Reuters survey of 10 property analysts, versus an expected 1.0% rise in a May poll.

An additional 9.0% fall was expected next year.

“The house boom is well and truly over because the surge in mortgage rates is pulling the rug from under it,” said Shane Oliver, chief economist at AMP.

“You can find three explanations why this downturn is going to be deeper and the recovery slower than in past cycles: high household debt levels, high home price to income levels and a finish in the long-term downtrend in interest levels.”

The Reserve Bank of Australia (RBA) has recently lifted rates by 175 basis points since May and is likely to hike by another half-point on Tuesday in order to contain surging inflation.

Markets are wagering the existing 1.85% cash rate could possibly be near 4.0% by the center of next year. Banks have sharply raised borrowing costs on new fixed-rate mortgages and tightened lending standards.

“The road of interest levels will dominate the housing outlook. A steep upsurge in mortgage rates between May and the finish of the year will weigh heavily on house prices,” said Adelaide Timbrell, senior economist at ANZ.

“Still, a considerable correction must return housing affordability and housing prices to fair levels.”

It will be considered a greater challenge for a few of the more heavily-indebted households in a country, which currently includes a record A$2 trillion ($1.4 trillion) of mortgage debt outstanding.

ANZ, Bank of Queensland, Capital Economics and Knight Frank said average house prices would need to fall by between 10-35% – roughly the total amount U.S. house prices tumbled through the global financial meltdown – to create Australian housing affordable.

Property prices in Sydney, the world’s second-most expensive housing marketplace after Hong Kong, and Melbourne were forecast to fall 7.0-10.0% this season and 7.0% next.

(For other stories from the Reuters quarterly housing marketplace polls:)

($1 = 1.4686 Australian dollars)

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Reporting by Vivek Mishra; Polling by Devayani Sathyan, Arsh Mogre and Anant Chandak; Editing by Hari Kishan, Ross Finley and Kim Coghill

Our Standards: The Thomson Reuters Trust Principles.

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