You can pretty much lock these forecasts in I reckon.
NAB has update their house price forecasts and is now predicting even bigger gains over the next two years, especially in current market darling Perth:
Perth’s house prices are on track to increase by 21 per cent over the next two years, National Australia Bank says in its latest forecast, lifting its earlier prediction by almost 4 percentage points this year alone as values accelerate.
The bank is now expecting Perth’s home values to jump by 13.7 per cent this year and gain another 6.2 per cent by the end of 2025.
Brisbane and Adelaide are also poised to rack up stronger growth in the next two years, with house prices predicted to increase by a total of 12.2 per cent and 12.3 per cent respectively.
“Adelaide has carried its momentum into early 2024 and Perth has accelerated further since late 2023,” wrote Alan Oster, NAB’s group chief economist.
Not much there I would disagree with.
Interestingly, NAB now expect that interest rates will be cut in November this year, and the falling interest rate outlook will drive prices into 2026.
But the real driver is the fundamentals of supply and demand. In a separate research report, senior economist Taylor Nugent notes that “We are not going to build our way out of housing undersupply any time soon,” with the pipeline of dwellings due for construction continuing to dwindle:
Drilling deeper into the ABS approvals data reveals a worrisome picture. Trend growth in private sector houses was up 6 per cent year-on-year. But the 102,000 detached houses approved in the past 12 months is not much better than 104,000 approved over 2019, before the pandemic hit.
Those annual results for detached are already soft and well below the near 120,000 average achieved in the five years or so before 2019, according to NAB.
“Attached approvals, in contrast, are both weak and threaten to fall further,” Mr Nugent said in his analysis.
Trend growth for private sector townhouses and apartments is down 28 per cent year-on-year, with only about 59,000 attached dwellings approved in the past 12 months, well below the peak of around 122,000 in the year to August 2016.
… “The broader elevated costs backdrop makes it difficult for valuations to stack up for some new projects, off-the-plan purchasing demand is low, and competition for resources with non-residential building and engineering work pipelines remain a hurdle.”
As supply of new homes is constrained, rental growth is expected to continue apace – NAB expects 8 per cent-plus growth into 2025.
Yep. This is what’s really driving prices right now. We have an epic housing shortage, and cost pressures have driven dwelling approvals to decade lows. There just isn’t enough new stock coming on line.
And the demand side (population flows) – and the supply side (construction flows) are both pretty slow moving beasts. We’re able to forecast dwelling completions 18 months out with high degrees of accuracy because it just takes so long to build a house.
So you can lock in the housing shortage.
And the big gains NAB are predicting look all but baked in to me.
DB