Australian home prices are set to surge 22% this year according to economists at Westpac, amid continuing discussion around how to reign in the inflated market.
This marks an upgrade on its previous forecast of 18%.
Prices across major cities are on track to jump 1.5% this month, Westpac said in a research note on Thursday, as Sydney and Melbourne ease their lockdown restrictions.
“We expect reopening boosts to more than offset any initial drags from recently announced macro-prudential measures,” Westpac economists said this week.
“This strong momentum will carry into 2022. However, the pace of gains is expected to slow, levelling out over the course of next year before moving into a correction phase in 2023.”
The forecast comes following a surge in residential property prices in the June quarter across Australia of nearly 7% – smashing the previous record set in 2009.
In Sydney and Canberra, property prices rose 19% in the past year. In Melbourne they rose 15%, and even in Darwin, which has the slowest growth, they increased a significant 13%.
The continued surges in property prices aligns with the growth of housing loans, with housing finance growing by a massive 83% in the past year.
In late September, the Australia’s Council of Financial Regulators (CFR), which includes the Reserve Bank of Australia (RBA), APRA, ASIC and Treasury, said it would release details around how it planned to impose limits on new lending over the next few months of the year.
It is expected to bring in new measures that will restrict new loans to six times the income of borrowers.
Treasurer Josh Frydenberg also said that month the government intended to restrict new borrowing as household debt continues to surge and record-low interest rates lowered borrowing costs.
Separately, the RBA has warned that “over-exuberance” in the property market could be dealt with through tighter lending standards, pointing to the fact that house prices have jumped more than 10 times the pace of wages, raising concerns about household debt and financial stability risks.
Westpac said it expects “incremental” tightening in macroprudential policy from early next year as the banking regulator APRA tries to curb credit growth.
It also predicts a first increase in the benchmark interest rate in early 2023, about a year before the Reserve Bank’s own expectation.
“As we move into 2023, the impact of the RBA’s tightening cycle will weigh more heavily on housing markets as borrowing capacity is impacted directly and as sentiment turns,” Westpac said.
That is expected to see the housing market move into a temporary correction, with prices reversing by 5% in 2023 in what would be a rare outcome for Australia’s housing market, it said.
Source: https://www.businessinsider.com.au/house-prices-westpac-economists