Banks predict housing price increase

Market Insights
3 years ago
2 minutes

Some of Australia’s largest lenders, including Commonwealth Bank and Westpac, are predicting that housing prices may not experience as large of a drop as initially predicted – with Westpac going as far as predicting that prices will increase substantially over the next 3 years. 

Westpac has updated their home-price targets, estimating that prices will surge by 5 percent by the end of 2021, and an additional 15 percent over the next 2 years into 2023. 

Gareth Aird, the Commonwealth Bank’s head of Australian economics explains, “Parking the Melbourne issues to one side, what has genuinely surprised us is the resilience of house prices in some of the other capital cities considering the negative shock to labour markets around the country.” 

CBA are forecasting a sharp turnaround of property prices – which have been dropping amidst the COVID-19 crisis – by December next year, with prices in Sydney to rise by 2.9 percent. Peter King, Westpac CEO, says that improved housing affordability and sustained fiscal support has helped the bank amend its previous outlook for Australian property prices. 

“For the near term, our revised view this means prices nationally are now only expected to fall a further 2.3 per cent out to June next year,” Evans explains.

“Of most importance is that we are much more optimistic about the pace of price appreciation over the following two years with a total expected increase of around 15 percent.”

According to Westpac, loan deferrals still present the biggest uncertainty for house prices.

“The key question here is around the scale and intensity of selling pressure as continued financial distress leads some borrowers into ‘urgent sale’ situations," Evans said.

“Nationally there are about 410,000 properties sold each year and if 10 percent of loans currently in deferral wind up on the market, that would see 60,000 ‘urgent’ sales accounting for 15 percent of all turnover.

“This would be enough to shift prices, particularly in areas where there are higher concentrations of these sales and demand is softer.”

Not all banks are in agreement with these forecasts, with the ANZ last month stating that they stand by their prediction that prices will fall by 10 percent from the peak, before bottoming out in the second half of 2021.

NAB’s outlook for property prices falling over the next 18 months also remains steady – with the bank predicting that there will be a drop of between 10 to 15 percent. 

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