House prices could potentially fall by 4% over the next year under the worst-case scenario by SQM Research.

SQM's Housing Boom and Bust Report 2022 analysed four scenarios that could impact house prices next year.

The report's base case assumes that the cash rate will remain unchanged, but the Australian Prudential Regulation Authority (APRA) will introduce further restrictions on lending by June 2022.

Under this base case scenario, price falls in some cities are expected as early as mid-2022, which could lead to prices ending the year with only up to 5% annual growth.

SQM Research managing director Louis Christopher said the national housing market is starting to show signs of a peak as the current year ends.

"We expect the market to peak in 2022, with further expected intervention by APRA, which could come as early as next month, halting the price momentum.

Mr Christopher said if prices do not slowdown by next year, it is possible that APRA will keep rolling out changes to lending until gains ease.

"We cannot afford another year of 20%-plus gains across the national housing market," he said.

"And so, to ensure a soft landing for the market, it is best we see additional intervention sooner rather than later to reign in property valuations.”

Prices at the worst-case scenario

Under the worst-case scenario, the study posits further APRA intervention by as early as March 2022, with the cash rate increasing to 0.25% - 0.5% by the first half of the year.

Against this backdrop, prices are expected to end the year 4% lower.

Brisbane is set to defy the overall downtrend and is projected to realise gains of 3% to 6% in this scenario.

Sydney and Melbourne to slow down

Under all scenarios, Sydney and Melbourne are likely to record price declines.

The additional restrictions that could be imposed by APRA will hit the two cities the most.

Melbourne, in particular, could also be further affected by interstate migration.

There could be a positive trend, however, in these two cities' unit markets.

SQM predicts unit rents and prices to outperform houses in these two state capitals in 2022, with the expected rise in net interstate and overseas migration as border reopens.

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