Will house prices rise or fall in 2023 across Australia?

Experts are divided on whether house prices will continue to take a battering in 2023 or if they will rise by up to 12 per cent as the threat of interest rate hikes dies down.

The estimated total value of residential real estate decreased from $9.6 trillion in December 2021 to $9.4 trillion in November 2022, while annual sales declined by 13.3 per cent with approximately 535,000 homes sold nationally, CoreLogic data showed.

Sydney’s property market suffered the most with suburbs such as Narrabeen on the northern beaches, inner city Surry Hills and Redfern recording the most significant falls in value over the year, down more than 25 per cent.

But falling house prices saw a marked slowdown by the end of this year dropping by just 1 per cent in November, following the steep monthly decline of 1.6 per cent in August.

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CoreLogic’s head of research Eliza Owen said the decline in house prices could have reached its peak, but the threat of further rate hikes in 2023 could also see them accelerate again.

“As we move into 2023, there continues to be a mix of headwinds and tailwinds for housing market performance,” she said.

“With expectations that the bulk of the rate tightening cycle occurred in 2022, housing value declines could find a floor in the new year.

“However, the extent of the floor in values could be further weighed down by mortgage serviceability risks, particularly for those rolling out of record-low fixed mortgage rates through the second half of year.

“But unemployment levels remain at historic lows, which plays a role in serviceability, helping to keep a lid on mortgage arrears.

“On top of that, strong rental markets and improving affordability from the point of falling values, may entice investors and first home buyers into the market, underpinning a recovery in buyer activity in the second half of 2023, when the cash rate stabilises.”

But others believe Australia’s housing market could rise by up to a whopping 9 per cent in the coming year.

Sydney would lead the recovery with the NSW capital experiencing the largest gains of up to 12 per cent in its property sphere.

That’s as long as the Reserve Bank of Australia doesn’t hike interest rates past 4 per cent and then starts to reduce them in the second half of 2023, research from the SQM Research’s Housing Boom and Bust report for 2023.

If interest rates don’t surpass 4 per cent and start to go down, then real estate across the country will on average enjoy a 3 to 7 per cent lift, the report found.

But properties could decline in value by as much 6 per cent in a worst-case scenario where interest rates continue to rise and inflation keeps going up.

Proptrack director of economic research Cameron Kusher said national property prices have fallen 3.8 per cent to November 2022 since they peaked in March.

“However, they remain 30 per cent above pre-pandemic levels. Of course, the declines have varied greatly throughout the country, with Sydney down 6.6 per cent, Melbourne down 5.3 per cent and Canberra down 4.2 per cent recording the greatest falls from their respective peaks,” he said.

“Prices continue to rise in Adelaide and regional South Australia and have only fallen marginally in regional Western Australia.”

He added there were several factors driving these declines with the falls following one of the most rapid periods of price growth in Australian housing history.

“The falls have also been a result of interest rates rising from 0.1 per cent at the beginning of May 2022 to 3.1 per cent in December 2022, with expectations they will rise even higher in 2023,” he noted.

“As a result of the rapid increase in interest rates, we have seen mortgage borrowing capacity drop by around 25 per cent … while prices have fallen much more moderately.

“We expect further price falls in 2023, with the largest falls likely in Sydney, Melbourne and Canberra and more moderate declines elsewhere.”

But Arjun Paliwal, founder of buyer’s agency Investorkit, said while the rental crisis will continue, if not worsen in 2023 – with prices set to rise by at least 10 per cent in most Australian cities – house prices will bounce back.

“For those looking to buy or sell, expect to see a gradual recovery in national house prices in the mid-to-later half of the year,” he said.

“It’s also welcome news for first home buyers in NSW who will have the option to pay an annual land tax instead of an upfront stamp duty fee, which may see them buy their first home sooner.”

Mr Paliwal believes national house prices will show signs of recovery next year from April to July, although Sydney and Melbourne homeowners will see a slower rate of recovery.

He added record-low vacancy rates, an undersupply in houses for sale, relative affordability, and strong local economies in regional Australia will lead to property prices being pushed up in these areas.

Some standout regions he predicts will see strong capital growth in 2023 include Townsville, Toowoomba, Rockhampton, Bundaberg, Albury-Wodonga, and the Barossa Valley.

“In Bundaberg, the median house price has increased significantly by 5.5 per cent over the quarter to September and sales asking prices have also increased 3.1 per cent between September and November alone,” he said.

Meanwhile, property experts revealed the “hottest” suburbs going into the New Year which included a scenic seaside location where homes are as cheap as $350,000.

Realestate.com.au’s first “Hot 100” list identified 100 suburbs around the country with the best growth prospects in 2023, with 29 in Victoria, comprising a mix of inner-city, outer-suburban and regional areas.

NSW and Queensland each had 24 suburbs with a similar mix, South Australia accounted for nine spots, Western Australia seven, ACT five, and Tasmania and Northern Territory each had just one suburb on the list.

However, the major banks haven’t been so positive about rising house prices in 2023.

National Australia Bank predicted house prices were set to plummet as much as 23.2 per cent by 2023.

Surprisingly, Hobart will suffer the biggest drop in house prices next year with prices set to plunge by 16.6 per cent, after falling this year by 6.4 per cent, NAB found.

This will result in Hobart house prices dropping by a huge 23 per cent in the space of just two years – meaning as much as $174,000 could be slashed from a median price home worth $758,000.