One of Australia’s largest banks is forecasting strong growth in the housing market as low interest rates and availability of credit pushes prices up, despite the country being in its first recession in nearly three decades.
Westpac chief economist Bill Evans has revised his predictions, having previously expected a 10 per cent slump between April 2020 and June 2021, to a now 5 per cent correction through to late 2021.
The economist is now predicting short-term pain for property investors before a surge in value over the next two years.
According to Westpac, house prices in Brisbane could lead the capital city growth predicted to jump by as much as 20 per cent by 2023.
“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),” Mr Evans said.
The forecast change comes amid improving optimism among economists about the housing market following better than expected performance and data – housing finance approvals last week jumping by a far stronger than expected 8.9 per cent in July.
Mr Evans said he had been surprised at the strength of the recovery in new lending, and the 15 per cent price rise call may also prove too cautious.
He explained that while this might sound like he is optimistic, there are some risks associated with the upside.
“Including the 5 per cent fall we expect out to mid-2021, this would see a cumulative increase in prices of 10 per cent from pre-COVID highs over a three-year period where interest rates and credit supply are likely to be at maximum levels of stimulus.
“Those upside risks are based on the psychology of markets. If participants are convinced about our views on the likely favourable conditions in the fourth stage of the cycle, they may choose to boost demand earlier than we currently expect, providing an even more robust defence against the headwinds we envisage in stages 2 and 3,” the economist concluded.