Australia’s housing market remains in a correction phase, forecast to continue over the coming years.

This is according to Westpac’s Housing Pulse report for November 2022.

National house prices have declined by 6.6% in Australia from their April peak, following the Reserve Bank of Australia’s fastest tightening cycle in over 25 years, as per CoreLogic data.

Stating the housing market is “hostage to the tightening cycle,” economists at Westpac said the trajectory of the correction will be decided on two factors: how the inflation outlook progresses and the impact of rate hikes on the wider economy.

“Australia’s housing market correction is now into its seventh month with interest rate rises remaining the dominant driver,” according to the report.

“A steep 2.75 percentage point increase in standard variable mortgage rates since April has sharply curtailed borrowing power for new buyers.

“While there are some tentative signs that the pace of price declines may be moderating, we are unlikely to see a stabilisation any time soon,” the report added.

The findings also showed history has revealed three different stages to housing market corrections. These include a fall on property prices due to the impact of rate hikes; a further drop because of ongoing high rates and a weakening economy; followed by a recovery phase as rate cuts are combined with an economic turnaround.

Whilst the central bank is forecast to continue hiking the cash rate and inflation constraints, Westpac economists predict Australia’s housing correction will begin the second phase next year before a recovery in 2024.

They added that housing corrections are more advanced in New South Wales and Victoria, whilst Western Australia and South Australia are still holding up, yet momentum has come to a standstill and sentiment has declined.