ANZ lifts its forecast for dwelling prices to gain 8% this year

Major Australian bank ANZ has again lifted its growth expectations for Australia’s house prices. For the third time since the markets bottomed out in May 2019, ANZ has said that prices will grow due to a mixture of low interest rates and easier access to credit.

The bank is now expecting dwelling prices to climb by 8 per cent this year, up from the 6 per cent it predicted in October. Of course, the growth rate differs around the country — Melbourne is forecast to grow the most with 12% growth, which is up 3% from the October prediction. Sydney is also expected to experience 3% growth, pushing dwelling values up by 10% overall.

ANZ senior economist Felicity Emmett said the pent-up demand and low volumes have combined to drive the markets’ unexpectedly rapid recovery.

“We’ve notched up our forecast a little bit because the pace of gains to date has been stronger than what we expected,” she said, “while the initial strength was concentrated in Sydney and Melbourne, the pick-up has broadened across the capital cities.”

ANZ is forecasting a 5 per cent rise in Brisbane’s home values, 3 per cent growth in Adelaide, 4 per cent in Perth and 3 per cent in Hobart, this calendar year.

What will growth be like in the future?

If we look even further ahead, ANZ is predicting moderate growth in 2021. Growth is expected to slow to just 4% nationally due to rising stock and low credit growth. Whilst 4% may sound low, we all have to remember that inflation is running at low 2% on average.

“We expect that the increase in new listings will help satisfy the pent up demand,” Ms Emmet said. See our article on improving dwelling approvals, which are still down 19.1% on last year.

“We think the price gains during the first quarter of 2020 will be lower than the previous quarter as a result and we’ll see this moderation through 2020.”

CoreLogic reported a 4 per cent increase in dwelling prices over the three months to December – the highest quarterly growth in 10 years.

“It was a very strong gain that we don’t think will be repeated,” Ms Emmett said. The historically low credit growth is also likely to limit home price growth in the year ahead as mortgage holders focus on repaying their debts rather than taking up new loans.

“I think eventually this will limit [price growth]. That’s part of the reason why we think the pace of gains will moderate,” she continued, “income growth is also quite weak at the moment and people are much more conscious of becoming more indebted. Even though there are lots of people getting new mortgages and loan sizes are increasing, the rate of repayment is rising as people focus on paying down their debts at the moment.”

Despite a boom in new mortgages, housing credit has grown by just 2.3 per cent year-on-year, suggesting that housing credit is being paid off almost as quickly as new loans are being issued.

“I think it’s a good thing over the long term. The high level of debt that Australian households carry is actually acting as a constraint on the economy,” Ms Emmett said.

“People are unwilling to open their purses and spend because they’ve taken on quite a lot of mortgage debt in anticipation of a pickup in wage growth, which hasn’t eventuated.”

This article has been adapted from one published by the Australian Financial Review.

Written: 7 February 2020

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