Property prices to cruise in 2022, decrease in 2023: Westpac

author-avatar By on October 14, 2021
Property prices to cruise in 2022, decrease in 2023: Westpac

Westpac has adjusted its outlook for Australian property prices in the coming years, predicting 2023 will see a small correction as interest rates rise.

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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Rates correct as of October 23, 2021. View disclaimer.



Image by David Boyle via Unsplash

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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Aaron joined Savings.com.au in 2021. He is a finance journalist with a keen interest in property, the share market, and improving financial literacy in young Australians.

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