May 1, 2023 by Dymphna

What Westpac really thinks will happen to house prices

The mood in the market has shifted. This is the new reality.

So you know I have access to a lot of information that your average property punter doesn’t. Let me share some of that with you.

This is Westpac’s forecasts for property prices. They just informed their institutional clients that they’re upgrading their forecasts for Aussie property prices over the next two years.

Turns out, the Aussie property market is a lot stronger than anyone predicted.

(Who knew?)

The short of it is that the market has clearly turned, and even growth this year will give way to decent price growth in 2024.

  • Nationally, dwelling prices to hold flat in 2023, revised up from -7%.
  • Prices now expected to lift 5% in 2024, revised up from +2%.
  • Markets showing convincing signs of stabilisation.
  • Migration influx, increased cost of new builds and tight supply contributing factors.
  • Still significant headwinds but improving outlook for rates and prices will provide support.
  • Sustained price gains to emerge once rate cut cycle begins in 2024.

Look at that. 8% in Perth. That’s getting very close to the definition of a boom.

But the central gist here is that the downturn is behind us, the market has stabilised, and unless we somehow end up with more interest rate hikes for some reason, prices should continue to power forward from here:

Australia’s housing sector experienced a material correction in 2022, with rapid rate rises driving significant declines in both prices (–9.7% between April 2022 and January 2023) and turnover (down about 30% over the same period).

More recently, markets have shown signs of a stabilisation. Prices nationally held flat in February, posted a 0.8% gain in March and are tracking a similar gain for April based on daily figures for the month to date. While the detail shows gains are still lopsided – centred on Sydney where ‘upper tier’ markets are leading the way – and seasonal boosts are flattering the situation a little, all major capital city markets have now seen prices stabilise or post small rises over the last three months.

Other indicators also look firmer. Auction markets show clearance rates have lifted to be back around long- term averages in April with pre-auction withdrawals also back near long run averages. Turnover also appears to have stabilised, and housing finance approvals figures to February show a clear moderation in the pace of decline – albeit with both still at very low levels by historical standards (25-30% below long run averages when viewed as a proportion of the total number of dwellings).

Yep.

Westpac is first to upgrade their forecasts, but I expect the rest of the majors to follow suit in short order.

This is the consensus now. The market has turned. Price gains are the new expectation.

And away we go.

DB.