Major bank revises forecasts up as prices keep climbing
ANZ is the latest major bank to revise up its forecasts for house price growth in 2021, predicting prices in Melbourne will rise by 20 per cent this year and around 7 per cent in 2022.
That places the city in line with the growth figure forecast for combined capital cities, but behind Sydney’s 23 per cent forecast.
ANZ pointed to the fact that markets had remained relatively unaffected by Covid-19 lockdowns as the key driver for the optimistic outlook, although uncertainty about the long-term impact on the market meant forecasts for 2022 were less feverish.
“Since March we’ve been forecasting house price gains of between 15-20 per cent across the capital cities, but recent performance has been stronger than we expected. We now forecast average capital city housing prices to rise just over 20 per cent in 2021,” ANZ senior economists Felicity Emmett and Adelaide Timbrell wrote in their research update.
The 20 per cent growth forecast encompasses price growth already recorded so far in 2021, with Melbourne having reported a 1.8 per cent increase in prices over the month of July, according to the bank.
Higher fixed mortgage rates and the threat of the Reserve Bank of Australia intervening to enact measures designed to slow growth were among the factors contributing to the lower forecast beyond 2021.
“We expect, however, that price gains will moderate from the hectic pace of H1 2021, given the increased uncertainty around the outlook, slightly higher fixed mortgage rates, and the prospect of macroprudential measures. We’re expecting average price gains of 7 per cent in 2022,” the economists wrote.
If these factors did not eventuate, there was a chance growth would outpace the forecast rates.
“The risks to the outlook appear evenly balanced. While the current momentum in prices suggests that growth in both 2021 and 2022 could outpace our forecasts, particularly if macroprudential tightening is delayed, the increased uncertainty around Delta and extended lockdowns pose some offsetting downside risk,” they added.
ANZ’s predictions for a buoyant 2021 follow recent updates from the other major banks.
CBA recently upgraded its outlook for national house price growth to 20 per cent in 2021 and then 7 per cent next year. NAB is predicting 18.5 per cent growth this year and 3.6 per cent next year. Westpac is forecasting a jump of 18 per cent and 5 per cent respectively .
Unlike the start of the pandemic, where owner-occupiers were responsible for the majority of housing market activity, signs were emerging of an investor resurgence, according to ANZ.
“Recent growth in housing finance suggests that prices will continue to rise solidly in coming months. While owner-occupiers were early drivers of the market, investor lending is now surging. Over the six months to June, investor lending rose 55 per cent and has more than doubled since June last year,” Ms Emmett and Ms Timbrell wrote.
“While still running at a solid clip, owner-occupier lending has slowed a little, largely because of a pull-back by first home buyers. Over the six months to June, lending to first home buyers fell 3 per cent, while lending to other owner-occupiers rose 23 per cent. Overall, though, momentum in housing finance is slowing after a year of stellar growth.”
Juanita Kelly, director of Woodards Elsternwick, said that the 20 per cent forecast was likely on the money for certain types of property in her part of the Melbourne market.
“It’s been amazing - anything with a land component I would say yes [the forecast is correct],” she added.
The apartment market was a “very different story” with “minimal growth,” with the exception of those properties with a courtyard.
“The properties with courtyards are lumped in with the group of properties with a land component, because I’m finding that anything I’ve got with a courtyard is running out the door at that 15 per cent growth rate,” she said.
The desire to have a land component to properties was “all completely a reaction to lockdown and space”.
Ms Kelly said that the forecast of a lower growth rate next year was likely to be true given the inevitable constraints on affordability.
Repeat of 2020’s extended selling season on the cards
Data firm CoreLogic is reporting that a high number of auction withdrawals in Melbourne is dragging down the national clearance rate.
Of the 1,683 results collected in the last week of August, 55.4 per cent were successful. That figure marks the lowest preliminary clearance rate recorded across the combined capital city market since late April 2020.
There were 1,185 auctions held across Melbourne this week, down from the 1,284 originally scheduled.
Of the 819 results collected at the time of reporting, 64.3 per cent were withdrawn, resulting in a preliminary clearance rate of 34.7 per cent.
The withdrawals, along with a number of vendors waiting to list, could lead to an extension of the traditional spring selling season according to CoreLogic head of research Eliza Owen.
Ms Owen pointed to the extension of last year’s selling season in Melbourne into late December as evidence of what can happen when a lockdown interferes with traditional selling seasons.
“Despite the current slowdown in transaction activity, previous lockdown conditions have seen a robust recovery in sales volumes and vendor activity,” she wrote in a recent update.
“There are tailwinds in place for housing market demand to suggest this may happen again; household savings rates remain elevated, new average mortgage rates continue to reach new record lows, and many government fiscal stimulus and broader institutional responses have been resurrected amid renewed lockdowns. This could see elevated transaction activity through the summer of 2021/2022 should restrictions be eased by then,” Ms Owen said.
Apart from lockdowns being extended until Christmas, the other factors weighing on a bounce back in activity similar to that witnessed in 2020 include an absence of first-home-buyers and a lack of government stimulus.
“Rising affordability constraints had already seen a downward trend in first home buyer activity since the start of 2021. Some arrangements that supported economic and housing conditions through 2020 lockdowns, such as JobKeeper and HomeBuilder, have not been re-surfaced this year for regions in lockdown, and may dampen the rebound in demand,” Ms Owen said.
“Another factor to consider is the more uncertain nature of the Delta variant, with this more contagious strain of the virus having the potential to make lockdowns more frequent until the vast majority of Australians are vaccinated. This could disrupt income streams, impacting the robustness of housing demand.”
Ms Kelly said that her agency had experienced the extended selling season in 2020 and was anticipating the same to occur this year.
“Definitely, 100 per cent we experienced it and it will happen again, if not more this year,” she said.
The freeze on many real estate-related activities during the current lockdown, as well as a lack of clarity about when the lockdown would end, meant it was inevitable sales campaigns would be pushed into December.
“This year seems to be different, in the lockdown I can’t remember last year everything being frozen so much, but we can’t do anything, we can’t get anyone through a property,” she said.
“Last year when we had the big lockdown everyone knew we were going to be locked down for a long time and needed to get their head around if they wanted to transact they would have to do so without seeing the property. This year it seems to be a throw out to the next week and the next week and then we are going to be able to do something,” she said.
“We just keep ringing up the vendors on a fortnightly basis and saying we’ll push it [the auction] out to two weeks' time.”
The backlog of work for contractors, including property stylists and copywriters, would also lead to delays listing properties when the lockdown eventually lifts, according to Ms Kelly.