Australian house prices

House prices to grow by 25% over 3 years

PHOTO: Australian house prices

New research is predicting a large gain in property prices of around 25 per cent through to the end of 2023, driven mainly by low interest rates.

Using the Reserve Bank of Australia’s model of the housing market, Coolabah Capital Investments (CCI) is predicting substantial property price growth through to the end of 2023, as well as similar gains in real residential investment.

The forecast, based on the model developed by RBA’s economists, Peter Tulip and Trend Saunders, foresees house prices growth of 8 per cent over 2021, including an additional 9 per cent in 2022, before a final spike of 8 per cent in 2023.

This takes the cumulative growth through to end-2023 up to 25 per cent.

But while a similar growth trajectory is expected across residential investment, with CCI predicting a 26 per cent lift over three years, rents are tipped to drop by 2 per cent through to end-2023, as vacancy rates peak.

“The ranges are large, but not surprising considering that house prices and rents are volatile. For example, the standard deviation of annual growth in house prices over recent decades is nearly 7.5pp, while the standard deviation of growth in rents is almost 3.5pp,” Kieran Davies, chief macro strategist at CCI, explained.

According to CCI’s modelling, in real terms, national house prices are currently up about 6 per cent from prior to the pandemic, which contrasts with past recessions where the median peak-to-trough decline has been 15 per cent.