The major bank has revised its forecasts for Aussie house prices this year and is now expecting total price growth for 2021 to be 22 per cent, up from its previous prediction of 18 per cent.
The lifting of restrictions in locked-down states, and followed by the ACT today and , will also keep price growth high until the end of the year, wrote Westpac top economists Bill Evans and Matthew Hassan.
“We expect reopening boosts to more than offset any initial drags from recently announced macro-prudential measures,” they wrote in a recent note.
“As such, a further 3 per cent gain over the last two months of the year is likely, bringing the cumulative rise to 22 per cent for the full year.”
But factors like “stretched affordability” and tighter lending rules will slow down the pace of growth for the following years, with house prices expected to rise by 8 per cent in 2022.
Then in the following year, house prices will slow down in earnest and enter a “correction phase”, the economists said.
This will be triggered by the Reserve Bank lifting rates. All the criteria the RBA needs to see in the economy to increase interest rates – higher employment figures, wages growth, and inflation between 2-3 per cent – will be met “by the end of next year”, Westpac believes, leaving the path clear for rate rises in the following year.
“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, with a tightening cycle seen as offering little scope for further price gains,” the economists wrote.
“That is expected to see markets move into a price-correction phase with prices retracing 5 per cent in 2023.”
Rising house prices a major concern
Westpac’s prediction comes amid a rising crescendo of voices expressing concern for unrelenting house-price growth.
The pandemic saw regional house-price growth outpace that of capital cities, as the ‘new normal’ of remote work led Australians to look further afield for their next home.