- Westpac has updated its property forecasts, expecting a serious boom in the coming years.
- The bank’s economists expect prices to fall nationwide by just 2.3% more to June before booming to 2023.
- Fuelled by low-interest rates and record economic support, chief economist Bill Evans and Matthew Hassan expect some capital cities to boom by as much as 20%.
Sky-high Australian property prices are not only set to live another day, they’re bound to go higher still, the country’s second-biggest bank predicts.
On Thursday Westpac broke ranks with the other big four banks to lay down its latest thinking, expecting the property market to get through the pandemic relatively unscathed before booming.
Months ago Westpac predicted national prices to fall by 10% and to recover a little more than 8% by 2022. However this week, chief 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%.
It’s a far more optimistic view than the ones held 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.
Some distressed selling will occur in June and September, the economists expect, as mortgage deferrals expire in March. But once overstretched borrowers have left the market and prices decline, especially in inner-city areas, the market is forecast to boom.
“We expect price increases over that 2021-23 period of 15% [or] around 7.5% per year,” Evans and Hassan wrote.
“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.
In fact, it could prove even worse for the have-nots, Westpac says, maintaining the boom could be even bigger than it expects, based on the “psychology of the market”.
In layman’s terms, if buyers believe the market will boom, by piling in they will only push prices higher still.
Its own prediction will do little to discourage that.