Westpac: House prices to rebound by 15% in coming years

author-avatar By on September 17, 2020
Westpac: House prices to rebound by 15% in coming years

Photo by Marcus Lenk on Unsplash

Westpac has forecast a 5% fall in house prices through to late 2021 before a 15% surge in the following two years.

Initially, the big four bank had forecast a 10% fall in prices from the April 2020 peak through to June next year, and an increase of just 4% per annum over the next two years. 

Looking to compare low-rate, variable home loans? Below are a handful of low-rate loans in the market.

Lender
Advertised rate Comparison rate Monthly repayment Rate TypeOffsetRedrawOngoing FeeUpfront FeesLVRLump Sum RepaymentAdditional RepaymentsPre-approval
VariableMore details
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
VariableMore details
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
VariableMore details
REFINANCE IN MINUTES, NOT WEEKS

Nano Home Loans Variable Owner Occupied, Principal and Interest (Refinance Only)

  • Refinance only. Fast online application
  • No Nano fees. Free 100% offset sub account
  • Mobile app, Visa debit card & instant payments
REFINANCE IN MINUTES, NOT WEEKS

Nano Home Loans Variable Owner Occupied, Principal and Interest (Refinance Only)

  • Refinance only. Fast online application
  • No Nano fees. Free 100% offset sub account
  • Mobile app, Visa debit card & instant payments
VariableMore details
YOU COULD WIN $100k TO PAY DOWN YOUR LOAN*

Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

  • For a chance to win $100K towards your home loan, apply with Athena before Oct 31 & be approved by Dec 15
  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
YOU COULD WIN $100k TO PAY DOWN YOUR LOAN*

Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

  • For a chance to win $100K towards your home loan, apply with Athena before Oct 31 & be approved by Dec 15
  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
VariableMore details
AN EASY ONLINE APPLICATION

Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

  • Unlimited additional repayments
  • Unlimited free redraws
  • Optional 100% offset can be added for $120 p.a.^
AN EASY ONLINE APPLICATION

Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

  • Unlimited additional repayments
  • Unlimited free redraws
  • Optional 100% offset can be added for $120 p.a.^

Rates correct as of October 17, 2021. View disclaimer.

Westpac economists Bill Evans and Matthew Hassan said low interest rates and a milder than expected recession had caused renewed optimism, but Melbourne would lag behind the rest of the country in their recovery. 

"We now expect many capital city markets to be more resilient with a national fall of 5% between April and June next year, distributed between: Melbourne (–12%); Sydney (–5%); Brisbane (–2%); Perth (flat); and Adelaide (2%)," they said.

"Of most importance is that we are much more optimistic about the pace of price appreciation over the following two years with a total expected increase of around 15%.

"For the near term, our revised view means prices nationally are now only expected to fall a further 2.3% out to June next year (prices having already declined 2.7% since April)." 

Westpac forecast prices stabilising due to a substantial boost from lower interest rates, particularly low fixed rates. 

Over the last year, the average discounted owner-occupier home loan has declined by 60 basis points to 3.65% p.a, and the average three-year fixed home loan has fallen by 106 basis points to 2.35% p.a. 

"Borrowers have been drawn to the lower fixed rates on the reasonable assumption that there is little to lose," Mr Evans and Mr Hassan said.

"Further significant reductions in the overnight cash rate, which traditionally impacts variable mortgage rates, are unlikely."

Westpac also forecast a stronger bounceback in GDP, as COVID disruptions have been briefer and milder than expected. 

Melbourne's second wave also appears to have been less severe than previously thought. 

Sustained upswing 

Westpac said the 15% surge in house prices would be accelerated by record low rates and freely available credit. 

The focus on economic recovery, rather than dropping the unemployment rate (which Westpac forecast to be above 7% in 2023), will be a constructive environment for the housing market. 

"We expect price increases over that 2021–23 period of 15% – around 7.5% per year," Mr Evans and Mr Hassan said.

"These increases are likely to be distributed as: Sydney (14%); Melbourne (12%); Brisbane (20%); Perth (18%); and Adelaide (10%).

"On the basis of those increases we would see affordability modestly worse than long run averages for the nation as a whole, with the advantage enjoyed by the smaller states diminishing."

Uncertainty around loan deferrals 

Westpac economists said loan deferrals posed the greatest uncertainty to dwelling prices.

"The key question here is around the scale and intensity of selling pressure as continued financial distress leads some borrowers into ‘urgent sale’ situations," they said.

"To get a sense of scale, nationally there are about 410,000 properties sold each year (4–5% of all dwellings).

"If 10% of loans currently in deferral wind up on the market, that would see 60,000 ‘urgent’ sales accounting for 15% of all turnover – likely enough to shift prices, particularly in areas where there are higher concentrations of these sales and demand is softer."

Westpac forecasted borrowers in stress would be carefully managed by lenders, and there would be widespread loan restructuring to avoid significant market disruption. 


Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Great Southern Bank, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
  • If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

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Alex joined Savings.com.au as a finance journalist in 2019. He enjoys covering in-depth economical releases and breaking down how they might affect the everyday punter. He is passionate about providing Australians with the information and tools needed to make them financially stable for their futures.

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