Housing sentiment lowest on record, Westpac data shows

Westpac’s August 2022 Housing Pulse report painted a fairly “bleak picture” of both current conditions and the near-term outlook, signalling that the housing downturn that started at the beginning of the year has “accelerated and broadened” over the last three months driven by the rising rate environment.

As the cash rate reached 1.85 per cent in August and inflation is expected to hit 10 per cent, it is widely anticipated the Reserve Bank of Australia (RBA) will continue increasing the cash rate with some economists forecasting the cash rate will peak above 3 per cent, while others anticipate it will stay below.

Nonetheless, rising inflation, alongside global economic challenges has led the RBA to increase interest rates over recent months and it has indicated it will continue to do “what is necessary” to bring down inflation to the 2–3 per cent range.

Given the rapid rising rate environment, Westpac’s consumer housing survey has found the proportion of Australians that view now as a good “time to buy” is at historic lows (78.2), which trumped the pandemic-level record lows.

Senior economist Matthew Hassan said markets were now “clearly hostage” to the tightening cycle, and expects the cash rate to hit 3.35 per cent by February 2023.

“Our revised rate profile means the expected market correction will come through earlier than previously anticipated,” Mr Hassan said.

He also tipped expectations for eventual rate cuts in 2024, with the “RBA now forecast to deliver 100-bps of easing” once the inflation threat has passed.

Westpac’s report has also found price expectations had fallen a further 20 per cent over the three months to August after a 22 per cent drop over the previous three months, taking the index to 97.1, well below its average above 120.

Mr Hassan said any loss of confidence around jobs could see “wider housing-related sentiment hit extreme lows”, but so far confidence around job was “the only positive” in the mix.

Indeed the fall in price expectations comes as house prices are in a downward phase, with anticipation of a fall between 15–20 per cent.

Since the start of the year, prices across the five major capital cities have dropped 2.7 per cent over the three months to July and “tracking a 1.5 per cent decline” for the current month. This followed a 0.4 per cent dip in May, 0.9 per cent decline in June and a 1.4 per cent fall in July, Mr Hassan said.

While the dip in property prices may seem “large”, Mr Hassan suggested the main dynamic in the correction will be around “higher rates reducing borrowing capacity” rather than a physical oversupply and/or a wave of distressed sales.

“As such, a prospective policy easing should allow for a modest recovery in prices in 2024,” Mr Hassan said.

It’s a view shared by ANZ’s researchers who indicated that rising wages and some easing in mortgage rates should lead to a 5 per cent increase in 2024.

Property price expectations across the states

With prices already moving lower quickly in Sydney and Melbourne, the report forecasts property prices to decline 6 per cent in 2022, with a further 8 per cent in 2023.

“The ‘peak to trough’ decline within this is around 16 per cent, closer to 18 per cent in the case of Sydney and Melbourne,” he said.

For example, Westpac’s report showed property prices in Sydney increased around 27.5 per cent over the pandemic, and were expected to dip 10 per cent in 2022, followed by an 8 per cent drop in 2023, before picking up again.

It’s a slightly more grim outlook for Melbourne, with the property prices lifting around 17 per cent during the pandemic, which follows expectations of an 18 per cent drop over 2022 and 2023. Hobart saw its property prices increase by around 34 per cent, whereas will only see a dip of 14 per cent.

Brisbane, Adelaide and Perth appear to be the most resilient according to Westpac’s analysis, with Brisbane lifting 30 per cent (2020 and 2021), and has continued to increase in 2022 up 2 percent, which is expected to follow a 6 per cent fall in 2023.

Adelaide reported a rise of 34 per cent during the pandemic, and is expected to increase by 8 per cent this year, followed by a falls of 6 per cent in 2023.

Finally Perth’s property market has seen a 20 per cent increase over the pandemic, which will continue in 2022 – up 2 per cent – before taking a fall of 4 per cent in 2023.

[Related: Economists expect upswing in house prices by 2024]

Kate Aubrey is the senior content producer of Momentum Media's mortgages titles: The Adviser and Mortgage Business.

Prior to joining Momentum Media, Kate covered regional and breaking news for ABC Radio for more than three years.

She has a Master of Arts in Journalism from the University of Melbourne and a Bachelor of International Business and Business Management from Griffith University.

Email Kate at: This email address is being protected from spambots. You need JavaScript enabled to view it.