Shane Oliver, AMP Capital chief economist, said home buying intentions could fall further as interest rates and cost-of-living pressures escalated.
“I think the drop in home buyer demand has further to go as interest rates are just starting to rise at a time when affordability is already worsening,” he said.
“The price falls will likely intensify as the pool of buyers dwindles as it gets harder for people to enter the market.”
A National Australia Bank survey found a similar decline in sentiment among home buyers in its latest survey.
Falling buyer demand
The number of Australians who think now is a good time to buy fell to 23 per cent in the first quarter from 24 per cent in the previous three months.
Meanwhile, the number of buyers who said they intend to buy a home in the next 12 months was unchanged at 13 per cent in the first quarter, but down slightly from 15 per cent at the same time last year, said Andy Kerr, NAB executive for home ownership.
High-frequency housing data from Domain is already showing the impact of falling buyer demand.
During April, inquiries tumbled by 17 per cent in NSW, it slumped by 12 per cent in Victoria, was down by 11 per cent in Western Australia and declined by 14 per cent in Tasmania. Adelaide recorded a 10 per cent drop, Queensland 4 per cent and nationwide it fell 14 per cent.
Online views per listing have also weakened in Sydney, Melbourne and Hobart, sliding by 5 per cent, 9 per cent and 4 per cent respectively. This coincided with the decline in house prices across those capital cities in the three months ended April.
“These weaker indicators show that the housing market is losing momentum, which will be exacerbated by rising interest rates and higher costs of living,” said Nicola Powell, Domain’s chief of research and economics.
“I think buyer demand and housing activity will slow further as we get into the winter months.”
The lower sentiment around buying homes was part of a broader decline in consumer sentiment, which fell to a 20-month low last week, said Eliza Owen, CoreLogic’s head of research.
“People may be wary of making a large financial commitment when interest rates and the cost of living is rising,” she said.
“Sales and listings activity is also correlated with value changes, so in other words a falling market could see buyers hold off. This may be because they are worried about falling into negative equity.”
HSBC chief economist Paul Bloxham expects house prices overall will rise between 5 per cent and 9 per cent this year given earlier gains, while noting the Sydney and Melbourne housing markets have stalled since the beginning of the year.
However, house price falls will set in over the second half this year, following higher than expected inflation and an abrupt shift in the RBA’s cash rate guidance, Mr Bloxham wrote in a briefing on Tuesday.
“As a result, we revise our 2023 housing prices forecasts from 1-4 per cent growth to a 5-10 per cent fall,” he wrote.