The increase is four percentage points higher than the 18% year-end growth the bank’s experts had previously forecast.
Westpac’s estimates are supported by the latest data from CoreLogic which shows prices at the start of October were already up 19.5% over the year, well on the way to the bank’s 22% estimate.
The growth is despite recent lockdowns in Sydney and Melbourne which barely created a blip in the market, as decreased supply saw buyers scrambling to secure a property.
Over September, property prices increased 1.5% nationally, with the Harbour City once again out-performing the rest of the county with a 1.9% increase.
The gains see the price of an average dwelling (houses and units combined) nationally reaching $674,848, led by Sydney at $1.05 million, which is significantly more expensive than next placed Melbourne at $775,142.
In perhaps positive news for potential homeowners, the staggering 2021 growth is unlikely to continue.
Westpac is expecting price growth nationally to drop to 8% in 2022 before “correcting” in 2023 with a fall of 5% on the cards that year.
Next year’s house price rise, which will largely occur in the first half of the year, according to Westpac’s top economic forecaster Bill Evans, is still higher than the 5% previously forecast.
Not surprisingly, the markets that have had the greatest gains this year, will have the lowest growth in 2022.
Sydney prices, which are expected to end the year 27% higher, will rise by 6% next year, according to Westpac and the Hobart market (25% in 2021) will have a similar increase in value.
Brisbane is the standout however with a 10% house price rise predicted on top of this year’s 22% gain.
Looking ahead to 2023, Westpac forecasts the 5% national price “retracement” will be mostly felt in Melbourne and Sydney, down 6% apiece, with Brisbane and Perth correcting 2% and Brisbane and Perth falling 1%.
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Evans is quick to point out that there are a lot of moving parts to the price outlook.
“The main pressure points are affordability – which is already stretched – and policy tightening by both the Reserve Bank and the Australian Prudential Regulatory Authority,” he says.
However, according to CoreLogic’s Tim Lawless, affordability is not likely to improve in the near term, with the number of properties on offer down 28.1% compared to the five-year average.
“Such low levels of available supply along with high demand is keeping selling conditions skewed towards vendors,” Lawless says.
“Nationally, homes are selling in 35 days and vendor discounting levels remain around record lows at 2.8%.”
The record low cash rate is also driving investor interest, a condition that according to the Reserve Bank won’t change until 2024.
In justifying the Reserve Bank’s decision to hold the cash rate at 0.01, RBA governor Philip Lowe said that while lifting the cash rate would lead to better housing affordability it would also mean poor wage growth and fewer jobs.
Currently, the only regulatory trigger impacting house price rises is a decision by APRA to increase the interest buffer.
Since 1 November, lenders have had to assess if home loan applicants can continue to afford their mortgage if interest rates increase by 3%, rather than current standard of 2.5%.
The change will essentially reduce the amount people can borrow by 5%. For example, an applicant that would previously be approved by a $500,000 loan, will only be able to borrow $475,000.
APRA chairman Wayne Byres said the move was to lower risks from an increasing number of huge mortgages.
“More than one-in-five new loans approved in the June quarter were at more than six times the borrowers’ income, and at an aggregate level the expectation is that housing credit growth will run ahead of household income growth in the period ahead,” he said.
Words by Erin Delahunty
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