Westpac: House prices will boom again from 2021 onwards

Australia’s second-biggest bank has updated its property forecasts for 2021, and they’ve broken ranks with the rest of the ‘Big Four’ banks in doing so. Westpac’s economists expect prices to fall just 2.3% (a far smaller fall then is expected by ANZ), and then to begin growing quickly from 2021 onwards. Fueled by low interest rates and economic support from the government, Westpac is expecting some cities to boom by as much as 20%.

On Thursday last week, Westpac announced that they believe that the property market will get through the pandemic relatively unscathed. This is a major change from their previous predictions, in which the bank believed that national property prices would fall by 10% and recover a little more than 8% by 2022. However this week, chief Westpac economist Bill Evans and senior economist Matthew Hassan noted their expectations had improved as the market showed resilience.

Instead, national prices will eventually decline 5%, or 2.3% more, to June, according to the pair. A locked-down Melbourne will lead the pack lower, shedding 12%, followed by 5% in Sydney, and 2% in Brisbane, while Perth won’t budge and Adelaide will actually lift 2%.

This outlook is significantly different than the views held by Australia’s other major lenders. This week the Commonwealth Bank upgraded its outlook to expect a 6% fall followed by a recovery roughly half the strength of the one expected by Westpac. ANZ meanwhile remains more pessimistic, maintaining 15% falls are still possible.

However, while price falls are expected to be more modest, it’s the resurgence that Westpac expects in the coming years that is more spectacular. While some distressed selling will occur in June and September (as mortgage referrals expire in March), once overstretched borrowers have left the market the market can be expected to boom.

Westpac price growth
Westpac property price forecast gains by capital city, 2022-2023

“We expect price increases over that 2021–23 period of 15% [or] around 7.5% per year,” Evans and Hassan wrote in their report.

“This recovery will be supported by sustained low rates, which are likely to be even lower than current levels; ongoing support from regulators; substantially improved affordability; sustained fiscal support from both federal and state governments; and a strengthening economic recovery, (particularly once a vaccine becomes available, which we expect in 2021).”

Specifically, they see prices jumping 14% in Sydney, 12% in Melbourne, 20% in Brisbane, 18% in Perth and 10% in Adelaide.

In other words, if Westpac’s forecasts come to be, Melbourne prices would return to pre-pandemic levels by 2023, while the other capitals will actually be far more expensive.

“On the basis of those increases we would see affordability modestly worse than long-run averages for the nation as a whole, with the advantage enjoyed by the smaller states diminishing,” the economists wrote.

While these predictions are just that — educated guesses about the future — they present a far more optimistic view of the coming years. Property prices rebounding strongly will be a great indicator for the Australian economy, as we’re likely to see consumer confidence and a number of other variables similarly grow at the same time. This will lead to more jobs and greater economic prospects for the everyday Australian, helping, hopefully, to soothe some of the pain from this year.

Written: 25 September 2020

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