A leading economist and mortgage industry player has welcomed the rise in official interest rates, saying housing prices are now likely to fall.
CEO of Peach Discount Mortgage Broking, Dr Nicholas Gruen, says the rise will create a “soft landing” in housing prices.
“And although it will lead to increased mortgage repayments for home loan borrowers, the adjustment will help the property market make a necessary return to realistic levels”.
“It’s a good thing to start to bring the market back. I don’t think there’ll be a ‘hard landing’ but rather a gradual return to reality,” says the former adviser to Federal Treasurer John Dawkins.
Dr Gruen accurately predicted the Reserve Bank’s decision, after also tipping the bottom of the fixed-interest rate cycle to within two days in July. This has added to Peach Home Loans’ reputation as the best-informed of the non-bank lending institutions.
“I now forecast a ‘soft landing’ with a sharp but small fall of around 5% in housing prices on this interest rate rise as the optimism leaves the market – rather like someone blowing the froth off a beer! However, we will then see a plateauing or further small gradual decline of prices for a couple of years. Prices will be free to resume rising – though slowly – once the market is confident that any oversupply has been absorbed and the next move in rates is down.”
But Dr Gruen has a word of caution for unit buyers.
“While housing prices will not fall dramatically, I predict that high rise unit prices will be more volatile. I forecast them falling by 10% fairly quickly and then steadily – by say another 10% – over the next few years.”
