5% DROP: Westpac predicts when house prices will fall
Jessica Yun| Yahoo Finance| 15 October 2021
https://au.finance.yahoo.com/news/westpac-prediction-house-price-fall-233747834.html
Australian property prices are expected to be up an eye-watering 22 per cent by the end of the year, but the pace of growth is set for a marked decline over the next two years, Westpac has predicted.
The major bank has revised its forecasts for Aussie house prices this year and is now expecting total price growth for 2021 to be 22 per cent, up from its previous prediction of 18 per cent.
Dwelling values have stormed higher all throughout the pandemic, with lockdowns having very little dampening effect. Already, prices are 17.6 per cent higher than they were at the beginning of the year.
The lifting of restrictions in locked-down states, beginning with NSW and followed by the ACT today and Victoria next week, will also keep price growth high until the end of the year, wrote Westpac top economists Bill Evans and Matthew Hassan.
“We expect reopening boosts to more than offset any initial drags from recently announced macro-prudential measures,” they wrote in a recent note.
“As such, a further 3 per cent gain over the last two months of the year is likely, bringing the cumulative rise to 22 per cent for the full year.”
But factors like “stretched affordability” and tighter lending rules will slow down the pace of growth for the following years, with house prices expected to rise by 8 per cent in 2022.
Then in the following year, house prices will slow down in earnest and enter a “correction phase”, the economists said.
This will be triggered by the Reserve Bank lifting rates. All the criteria the RBA needs to see in the economy to increase interest rates – higher employment figures, wages growth, and inflation between 2-3 per cent – will be met “by the end of next year”, Westpac believes, leaving the path clear for rate rises in the following year.
“As we move into 2023, the impact of the RBA’s tightening cycle will weigh more heavily on housing markets as borrowing capacity is impacted directly and as sentiment turns, with a tightening cycle seen as offering little scope for further price gains,” the economists wrote.
“That is expected to see markets move into a price-correction phase with prices retracing 5 per cent in 2023.”
Rising house prices a major concern
Westpac’s prediction comes amid a rising crescendo of voices expressing concern for unrelenting house-price growth.
Earlier this month, prudential regulator APRA clamped down on risky lending by increasing the interest rate buffer borrowers must meet to obtain a loan, making it harder for Aussies to take out a mortgage.
Treasurer Josh Frydenberg recently signalled plans to crack down on rising levels of household debt, and said he had held discussions with the Council of Financial Regulators on the matter.
The head of Australia’s biggest mortgage lender, Commonwealth Bank, Matt Comyn also remarked last month that it would be “prudent to act sooner rather than later” to cool red-hot house prices.
Meanwhile, Reserve Bank assistant governor Michele Bullock recently deviated from the central bank’s insistence that house prices were not its responsibility by revealing it was assessing “tools” that could be used to manage risks associated with high property values.
Social welfare groups have also long advocated for more affordable housing options, with Everybody’s Home spokesperson Kate Colvin describing the housing system as “warped”.
The pandemic saw regional house-price growth outpace that of capital cities, as the ‘new normal’ of remote work led Australians to look further afield for their next home.
But the mass exodus to regional living also also priced locals out of buying property in their own neighbourhoods.
Dozens of economists and property experts have criticised the Coalition Government for its lack of a cohesive housing policy, describing this as a “triple crisis” for the economy.
Leave a Reply
Want to join the discussion?Feel free to contribute!