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Australia’s housing market has continued to “outperform expectations”, particularly when it comes to prices, resulting in Westpac revising up its house price forecast for this year and next.
While the major bank had previously expected house price growth to be flat this year, its new outlook for property values is that house prices will increase by 7 per cent in 2023 and then a further 4 per cent in 2024.
In a bulletin issued yesterday (7 August), Westpac said despite rate hikes from the RBA in February, March, May, and June, the housing market has consistently seen prices, turnover, auction activity, and new finance approvals increasing.
It noted that prices had rebounded from a low in February (after experiencing a 9.7 per cent fall over the previous 10 months) and the market was faring much better than expected due to supply constraints.
Migration impact
Westpac indicated that the strong showing of the market was due to the sharp acceleration of migration into the country, putting increased demand on the rental and housing market while having low levels of supply.
Indeed, the bank had forecast an increased net migration and population of approximately 1.9 per cent (350,000) in 2023, however, the latest ABS data has shown the population grew by around 2.4 per cent in mid-2023, with an annual migration inflow of 450,000.
Increased forced savings during the pandemic was another reason for the housing market’s greater-than-expected rebound, according to Westpac.
Approximately $260 billion in excess savings were accumulated across the wider household sector during the pandemic, with the bank stating those with higher levels of funds could now be using them for property purchases either directly or indirectly as investors.
Its bulletin read: “While the scale of this behaviour is hard to ascertain, it would only take a small portion of these funds being redirected to property to potentially shift a market that is currently transacting around $100 billion a quarter.”
Senior economist at Westpac, Matthew Hassan, added that the housing sector’s recovery was “abnormal” due to the current conditions, suggesting that “housing recoveries in the past have only tended to flow through to prices once the RBA is actively cutting rates or is very clearly poised to do so”.
Mr Hassan said that the true strength of the market would be seen “when sellers come back” with a shift in the supply-demand balance to “test the depth of demand, and price gains may prove harder to sustain”.
The investor ‘wild card’
However, the major bank said the “wild card” of the housing market was investors and the extent that their activity drives the market.
Mr Hassan said: “Our consumer sentiment survey shows most Australians view residential property as a risky proposition – currently only 5 per cent nominating it as the wisest place for savings.
“That suggests we are a long way from seeing an investor boom take hold.
“However, attitudes will undoubtedly shift as the interest rate environment becomes less threatening and rental returns and dwelling prices continue to rise. Investor activity will remain an area to watch closely as the upturn unfolds.”
Westpac’s revision for house prices is much higher than those of its fellow major bank NAB, which recently increased its predictions for house prices to be up 4.7 per cent in 2023 and 5 per cent in 2025.
Meanwhile, PropTrack has recently said that it expects national property prices to increase a further 2–5 per cent by the end of 2023.
[Related: House value growth is easing: CoreLogic]
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