Housing boom set to end in 2022

House prices could start falling as early as the middle of next year – by up to 3 per cent in Melbourne and 2 per cent in Sydney – as the Australian Prudential Regulation Authority imposes further lending restrictions, SQM Research’s Boom and Bust report predicts.

Capital city dwelling prices are expected to peak by the June quarter and would flatten towards the end of 2022, dragged down by the contraction in the Sydney and Melbourne markets.

The forecast assumes the RBA will keep interest rates on hold, headline inflation will rise to between 3 per cent and 5 per cent, and the regulator will take further action by June next year.

But APRA could move as early as next month to further tighten lending by raising the serviceability buffer by 50 basis points to 3.5 per cent or impose some restrictions on investor lending, said Louis Christopher, SQM Research managing director.

“APRA will most likely announce new additional measures as early as late next month or early 2022, as history tells us that they don’t just take one action, they usually go through multiple interventions,” he said.

“NAB chief executive Ross McEwan has also called for more action from APRA, and when you have someone in that position to call for further tightening, generally speaking, it’s already in the planning stage.

“Put it this way, if the Australian housing market does not slow down by mid-2022, APRA will keep intervening until it does. We cannot afford another year of 20 per cent plus gains across the national housing market. And so, to ensure a soft landing for the market, it is best we see additional intervention sooner rather than later.”

An earlier APRA intervention could see Sydney prices posting sharper falls than the expected drop of up to 2 per cent, Mr Christopher said.

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