Australian house prices are expected to fall in 2023, according to the Commonwealth Bank. This is a result of a rapid tightening cycle. The RBA has raised interest rates and will continue to do so as a means to quell inflation. It is also expected that the supply of new homes will be limited. Consequently, the value of the existing housing stock is predicted to fall in 2023 by about five percent nationally.

Nevertheless, it is not clear how much of the decline in property values will come from the existing inventory. There is some evidence that the demand for housing will grow. However, the economy is not yet growing fast enough to keep up with the demand. Furthermore, there are not many new construction projects underway. Therefore, the property market will be more fragmented moving forward.

In recent months, there has been a significant volume of transactions. As a result, the price gap between houses and apartments is already starting to narrow. At the beginning of the year, the gap between the two types of properties was a record high of 23.7%. Since then, property values have fallen by 3.5 percent.

While the decline has not been as dramatic as some predictions, the overall trend is still downward. According to the CBA, the property market is expected to fall by about 15 per cent in 2023 from its peak. That means a majority of the homes sold will be converted into rentals, rather than being sold.

Some segments of the housing market are expected to outperform in the future, such as the lifestyle suburbs in Melbourne and Sydney. Homebuilders are also expected to scale back their production of new homes in the coming years. They will also discount their unsold properties, which will help prepare for the eventual rebound.

Another factor that will support the housing market predictions 2023 is low unemployment. Most households in Australia have a significant amount of equity. If inflation increases, the cost of living will rise, which will impact the borrowing capacity of certain demographics.

In addition to rising wages, the influx of overseas migrants will help drive a recovery in Sydney. Similarly, the shortage of rental accommodation in the Sydney metropolitan area will also boost the economic recovery. Combined with relatively low unemployment, this will provide needed support for the Australian housing market in 2023.

Lastly, mortgage affordability is going to be a major concern in the foreseeable future. As interest rates rise, the cost of living will increase, and this will reduce the borrower's ability to purchase a home.

With this in mind, it is not surprising that homebuilders have cut back on the amount of new home projects they are undertaking. Those with lower land costs will cut the size of their homes, and those with higher land costs will reduce the input costs of their new projects. Likewise, those who are reluctant to sell may be tempted to sell at a discount. Although this will add to the supply of housing, it is unlikely that this will help drive up prices in the short term.