The mortgage stress postcodes set to sink with THREE more interest rate rises tipped - as inflation surges again

Sydney's mortgage stress postcodes are in danger of suffering sharp house price falls next year with the Reserve Bank expected to raise interest rates three more times.

House prices in pocket's of the city's outer south-west have already been falling during the past year, even though greater Sydney values have surged by 10 per cent.

High immigration has coincided with double-digit house price rises from the north shore to the western suburbs, along with upmarket postcodes near the city.

But in Sydney's outer south-west, house prices have been falling in the year to October, CoreLogic data showed. 

At Cecil Hills, prices have dropped by 4.2 per cent back to $1.26million, putting it further below greater Sydney's mid-point level of $1.397million.

SQM Research is expecting greater Sydney house prices to fall by two to six per cent in 2024, based on the Reserve Bank raising interest rates three more times from an existing 12-year high of 4.35 per cent to a 15-year high of 5.1 per cent. 

Under this worst case scenario, the Israel-Hamas conflict in the Middle East would would see inflation approach 7 per cent again, up from 5.4 per cent now.

The group's managing director Louis Christopher said Sydney's outer suburbs in particular were likely to suffer sharper falls.

'It is expected Sydney’s middle to outer rings for free standing houses will record a greater correction,' he said.

Suburbs more than 40km from the city have mid-point house prices above $1million.

So even with a 20 per cent mortgage deposit of $200,000, a couple servicing an $800,000 mortgage would need to earn at least $133,000 between them to avoid being in mortgage stress.

That's where a borrow owe the bank more than six times what they earn.

'Typical mortgage repayments to household incomes have reached generational new highs and put housing out of reach for the majority of Sydney working adults,' Mr Christopher said.

Sharp falls would be particularly bad news for recent borrowers, who could be left owing the bank more than their house was worth - a situation known as negative equity. 

Credit ratings agency Moody's Investors Service data showed Sydney's south-west comprised four out of five of the worst postcodes in New South Wales for mortgage arrears, where a borrower is 30 days or more behind on their mortgage repayments.

They included Cabramatta, where $1.055million is the median house price, and Casula with a mid-point price of $1.082million.

Australia's net immigration level in the year to August was above the 400,000 level.

Economists and immigration analysts are expecting that figure to surpass the 500,000 mark, and set a new annual record, in late 2023.

Overall population growth in the year to March stood at 563,200, based on record immigration of 454,400 and 108,800 births.

But Mr Christopher said that Sydney, Melbourne, Hobart and Canberra prices would fall even if population growth levels slowed to 460,000 - combining net immigration and the natural increase.

Perth was expected to be resilient, even if rates rose with house prices there expected to rise by five to nine per cent in 2024 - with prices already surging by 11.1 per cent during the past year.

The West Australian capital's median house price of $660,069 is the most affordable among the state capitals.

Melbourne, however, was expected to see house prices fall by three to seven per cent, with the existing house price now at $937,736.

Hobart prices were expected to fall by five to nine per cent, in a market where house values during the past year have sunk by 5.1 per cent to $705,919.

But Brisbane was expected to prosper with price increases of one to four per cent, in a city with a median house price of $860,465 - following a 10.3 per cent increase since January.

Adelaide was tipped to be more mixed with a three per cent drop to a one per cent rise predicted in a city with a mid-point price of $753,575. 

Canberra was tipped to suffer the biggest drop of 6 to 10 per cent, in a city with a median price of $961,329. 

SQM Research modelled four scenarios.

They all involved interest rates rising three more times, but with varying degrees of unemployment and population strong from immigration.

In the least dramatic scenario, unemployment would rise from 3.7 per cent in October to 4.5 to 5.5 per cent in 2024. 

The worst case scenario had the jobless rate climbing to 6 per cent for the first time since early 2021.