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House prices in Sydney are tipped to grow by 20 per cent over the next two years, and by 18 per cent in Melbourne, as a leading economist predicts strong economic growth following the rollout of the COVID-19 vaccine.
In a report released on Monday, Westpac’s chief economist, Bill Evans, said the bank has now lifted its forecasts to double-digit growth across the nation as momentum across the capital cities continues to swell until a predicted stall in 2023.
The economist stated that the Australian market as a whole is tipped to expand by 10 per cent in both 2021 and 2022.
Brisbane (10 per cent over both years), Adelaide (10 per cent, then 8 per cent) and Hobart (8 per cent, then 6 per cent) are also showing strong signs of growth over the next two years. (12 per cent this year, 8 per cent in 2022),
Westpac’s chief economist pointed to the high clearance rates across Sydney and Melbourne, declaring a “sellers market” until new listings become available.
“The upturn is being supported by record-low interest rates, the confident expectation among borrowers that these rates will remain low for years to come, ample credit supply and an improving economic backdrop, as the rollout of vaccines promises to bring the pandemic to an end and drives a sustained lift in confidence,” Mr Evans said.
While noting some of the strong activity relates to markets playing catch-up following the pandemic, Mr Evans pointed to high dwelling approvals and a rise in new lending across the final quarter, which he said demonstrated strong confidence in the current housing market.
“However, even allowing for this, the picture is unambiguously strong. Most tellingly, buyer demand has run well ahead of ‘on market’ supply, with sales outstripping new listings by 34 per cent over the last six months and ‘stock on market’ down to just 2.5 months of sales – the long run average is 3.8,” the economist said.
Mr Evans also pointed to strong gains in regions where the virus remained subdue over the coming months, before the pendulum swings back to Sydney, Melbourne and Brisbane in 2022.
“The upswing is also likely to see a rebalancing towards investors, particularly as affordability constraints re-emerge for owner-occupiers, including first home buyers,” Mr Evans explained.
Touching on the likelihood of a prolonged interest rate hold, Mr Evans noted that if the RBA is no longer prepared to continue committing to ‘three years on hold at 0.1 per cent’ rhetoric in 2022, Westpac's analysis of their forecasts for inflation and wages suggests official guidance at that point will still be to expect rates to remain on hold for a number of years.
“This adjustment will increase fixed-term mortgage rates and may take some heat out of the market at the margin but is unlikely to derail what will be a very well-established price upturn by 2022,” he said.
Despite remaining bullish, the economist pointed to falling migration levels being a medium term headwind for the property market.
“If borders remain closed for longer or migration inflows are slow to restart, that could lead to a market-wide physical oversupply of dwellings by 2022. How that may influence market conditions and price growth is unclear,” he said.
“For example, rental vacancy rates may remain elevated for longer, perhaps even pushing higher, but that may not do much to deter investors seeking expected price gains, particularly as rental yields are likely to remain above funding costs.”