More gradual rate increases would have led to slower declines, Oliver said, but it was ultimately the end point that had the biggest impact on property prices.
Oliver said his price forecast is based on the cash rate reaching a high of 2.6 per cent later this year or early next. Were the rate to lift to 3.5 or 3.6 per cent, as forecast by others, prices might fall 25 to 30 per cent, but he cautioned the Reserve Bank was unlikely to lift rates to a point that could push the property market down that far.
Gareth Aird, head of Australian economics at Commonwealth Bank, said the pace and size of rate rises had sped up price declines in Sydney and Melbourne, where the market had already been cooling. The sizable hikes had also seen price falls spread.
“The Brisbane market recently turned too… and has turned in a short space of time given the speed at which the RBA has put through rate hikes,” he said.
Aird had expected prices nationally to fall 15 per cent by the end of 2023, but said the trough could now be earlier than anticipated. He has forecast the cash rate to peak at 2.6 per cent by November.
Aird said more buyers were holding back, awaiting the floor in the market, which in turn put further downward pressure on prices.
Center for Independent Studies chief economist Peter Tulip, who co-wrote a paper modeling the relationship between cash rate changes and property prices, said faster changes led to a faster response, but he did not expect it would make a noticeable difference to overall declines.
“As a rough rule of thumb a 1 per cent increase in the cash rate means an 8 per cent decline in house prices,” he said.
He noted it could take about two years for the impact of rates to flow through the market, and part of the picture now is a response to fixed mortgage rates starting to increase a year or more ago.
Westpac Business Bank chief economist Besa Deda said prices were falling at a sharper rate than in previous cycles, which could reflect the speed of rate hikes. While rates were rising from very low levels, and households in aggregate had built up financial buffers to handle higher repayments, the speed had affected the outlook for the property market.
Westpac has deepened its peak-to-trough forecast to a 16 per cent drop, expecting the cash rate would have to move higher, faster, to tackle inflation.
“The amount of tightening we’ve seen over the past four months…that’s probably accelerated the decline in dwelling prices, but that has been a necessity because of elevated inflation,” she said.
“If the RBA took a more casual approach … the risk is you’d end up with a higher [peak] rate, as it would take longer to bring down inflation and require more rate rises.”