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As 2022 draws to a close, this is the question on many buyers’ minds.

Since interest rate hikes commenced in May, there’s been a noticeable effect on the property market. A startling seven consecutive rate rises mean buyers have naturally become cautious. As a result, less-desirable properties are languishing on the market, and housing prices across the nation are falling.

So what does this mean for 2023? Well, it’s expected that we’re going to see a year of significant price decreases as the cash rate finally peaks, along with ongoing pressures from the rising cost of living. There’s a lot at play!

Experts predict house prices could tumble 15 to 20 per cent, while the RBA expects an 11 per cent drop by December 2023. Corelogic data suggests the median house value could fall by as much as $150,000.

Deutsche bank believes prices will bottom out by mid-year once the interest rates top out. In this case, we could see limited stock due to vendors waiting out the downturn.

For buyers hoping for a good deal in 2023, they could be in for a bitter disappointment. Price falls would usually be good news, but additional interest rate hikes could offset any bargain buy and further reduce borrowing capacity.

It’s my view that with a strong labour market and lots of potential buyers receiving pay rises, borrowing power still won’t be the same as six months ago.

The Big Four predict cash rate increases well into the second quarter of 2023. NAB forecasts a peak at 3.60 per cent in March 2023, while Westpac and ANZ are less optimistic, determining a peak at 3.85 per cent somewhere in the second quarter of the year.

For an average home loan of $500,000, this would see the monthly repayment increase by $1,058 from May 2022 to May 2023 and is an indication of more mortgage stress to come at a time when homeowners have already grappled with adjusting their budget.

Many people will need to reset their expectations in 2023 to handle at least another 1 to 1.5 per cent rate increase. The RBA has announced that those with expiring fixed-rate loans could face a 45% increase in their monthly mortgage repayments by the end of 2023.

Indeed, we’re seeing a very different landscape to the 2021 boom. Those wishing to refinance as housing prices continue to decline will need to hold at least 20 per cent equity in their home to avoid mortgage prison.

But it’s not all bad news, is it? The good news is that forecasters expect most mortgage holders to still be able to service their home loans. The present take is that interest rates should stabilise by the end of 2023, bringing relief to buyers and those who hold a mortgage with less than 20 per cent equity.

In fact, some experts estimate that vigorous buyer activity due to a rise in demand for a good buy could propel the market in 2024 and see investors flocking back as property prices climb again. Housing prices could grow by 5 per cent in 2024, and we could see the cash rate back under 3 per cent.

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