Westpac's latest outlook predicted property prices will rise 8% in 2022, before falling 5% in 2023.
"Markets continue to show very strong momentum with only a slight dampening effect from the latest COVID lockdowns," Westpac economists Bill Evans and Matthew Hassan said.
"We now expect a 22% gain for the full 2021 calendar year (up from the previous forecast of 18%)."
The 8% forecast growth figure for 2022 was revised up from Westpac's previous prediction of 5%, with the report noting most of the increase will be loaded into the first half of the year.
According to Westpac, markets will move into the first year of a correction phase in 2023 as official interest rates rise, with prices forecast to retrace by 5%.
Westpac, CBA, ANZ all predicting more serviceability tightening
The Westpac report reinforces statements made in September by CBA and ANZ that lending restrictions are on the way.
The banks' predictions were confirmed earlier this month, with APRA recommending an increased minimum interest rate buffer for banks to use when assessing home loan serviceability.
The serviceability increase is estimated to reduce the borrowing power of property buyers by around 5%.
Westpac reports further macro-prudential policies and an increase in interest rates would start to influence property prices in 2023.
"Last week’s move by APRA – lifting the buffer rate applied to loan serviceability assessments from 2.5% to 3% – marks the first step in what we expect to be an incremental tightening in ‘macro-prudential’ policy (MPP) aimed at restraining credit growth and housing market activity," Westpac said.
"The shift on MPP has come a little earlier than expected – before the full scale of the ‘delta’ shock has been confirmed and ahead of reopening, signalling a degree of urgency."
Property prices 2021-22
Westpac outlined lockdown reopening boosts will more than offset any initial drags from recently announced macro-prudential measures, generating updated predictions of 22% price growth for 2021 and 8% price growth for 2022.
"A further 3% gain over the last two months of the year is likely, bringing the cumulative rise to 22% for the full year," the report said.
"This strong momentum will carry into 2022.
"However, the pace of gains is expected to slow, levelling out over the course of next year before moving into a correction phase in 2023."
Affordability concerns
The report also raised affordability concerns for capital cities, and the regions.
"The Sydney and Melbourne markets are, respectively, 18% and 10% above their previous price peaks in 2017-18, a time when both encountered major affordability problems," the report said.
"Many other capital city and regional markets are also recording high prices by historical standards."
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