Westpac, one of Australia’s Big Four banks, has revised its property price forecasts for 2023, now predicting a 7% rise across the five major capital city markets. This marks a significant change from the bank’s previous prediction that property prices would remain flat this year due to the impacts of higher interest rates and broader economic challenges.
The revision comes as Australia’s housing market continues to outperform expectations, particularly concerning prices. Westpac senior economist Matthew Hassan commented, “Across the five major capital city markets, dwelling prices have now risen 4% over the year to date – a 5.2% rebound from February’s low retracing just over half of the 9.7% fall over the previous 10 months.”
Despite ongoing rate hikes from the Reserve Bank of Australia (RBA) in February, March, May, and June, price gains have been “well sustained.” The consistent picture from various indicators, including prices, turnover, auction activity, new finance approvals, and sentiment, suggests a broadening recovery.
Following the RBA’s decision to pause in August, we now see interest rates remaining on hold for an extended period, albeit with rate cuts now expected to commence a little later, in the second half of 2024 rather than by mid-yearMatthew Hassan
According to CoreLogic’s most recent national Home Value Index (HVI), Australian property prices have lifted for five consecutive months, including a 0.7% increase in July. Westpac attributes the recent gains in the market to a surge in migration inflows, a tightening in rental markets, and low levels of supply. Additionally, Mr. Hassan pointed to the possibility that excess savings accumulated during the pandemic are being put towards property, particularly among higher-income households.
The improvement in Westpac’s outlook follows the bank’s abandonment of forecasts for further interest rate rises and a significant weakening in the economy, which was expected to lead to a “significant loss of momentum for housing” in the near term. “Following the RBA’s decision to pause in August, we now see interest rates remaining on hold for an extended period, albeit with rate cuts now expected to commence a little later, in the second half of 2024 rather than by mid-year,” Mr. Hassan said.
As for GDP growth in Australia, the outlook is now “a little less threatening” due to better-than-expected labour market conditions and the impact of rate rises on disposable incomes being milder than anticipated. GDP growth is still forecast to be weak, running at just 1% in 2023 and 1.4% in 2024, but not quite as weak as the sub-1% average for the two years that had been forecast previously.
One key uncertainty weighing on the property market’s outlook is the potential impact of investor activity. Given current low vacancy rates, rising yields, rising prices, and positive price expectations, some lift in investor activity is expected. However, Westpac’s consumer sentiment survey shows that most Australians view residential property as a risky proposition, with only 5% nominating it as the ‘wisest place for savings’. This suggests that an ‘investor boom’ is still far from taking hold.
Following the 7% gain forecast for 2023, Westpac expects that property prices will rise by 4% in both 2024 and 2025 due to affordability constraints. As a result, prices are expected to rise above their previous peaks by late 2024.
Westpac’s revised forecast adds to the complex picture of Australia’s property market, reflecting ongoing momentum and an improved near-term outlook for interest rates and growth. The bank’s insights provide valuable guidance for investors, policymakers, and other stakeholders navigating the ever-changing landscape of the Australian housing market.