The scenes of large crowds at property auctions across Australia in first weeks of 2021 are arguably another sign that the property market is now primed for a sustained price rise.
“80 per cent clearance rates are consistent with double-digit dwelling price growth,” said the Commonwealth Bank’s Head of Australian Economics Gareth Aird, as Sydney auction clearance rates surged to 88 per cent for the second weekend of February.
“Prices are now rising in all capital cities, in fact, they are rising quite quickly,” said Aird, who is now forecasting a 14 per cent rise in residential property prices in the nation’s capital cities over the next two years.
“New lending, or just lending in general, is a really key guide to what’s likely to happen with prices,” he said, pointing to the recent strong lift in bank lending.
“The money that people borrow ends up going into the housing market, and that then pushes up prices.
“Everything is pulling in the one direction and what tends to happen is that expectations become self-fulfilling, and that in effect, validates the expectations. We are at the part of the housing price cycle where it looks that things are really set to go, just by given how strong the underlying momentum is,” he said.
Back to record highs
The heightened confidence in the market has come after median dwelling prices nationwide hit a record high in January, according to the property data firm Corelogic.
“Many of the housing market headwinds have dissipated as the Australian economic recovery consistently outperforms forecasts,” said Corelogic after reporting that housing values across Australia were now 1 per cent higher than pre-Covid levels.
Westpac followed CommBank’s optimistic forecast with its own bullish prediction that housing prices in Sydney could rise 20 per cent over the next two years.
“The bottom line is that Australia’s housing upturn now has strong momentum that looks to be lifting further and will remain well supported by monetary conditions and an improving economic backdrop. We now expect the upswing to generate stronger, double-digit, price growth near term while our expectation, back in September last year, remains that a policy response can be expected later in 2022 which will settle markets into 2023,” noted Westpac’s Chief Economist Bill Evans and Matthew Hassan.
Record low rates until at least 2024
The optimism surrounding the housing market has been further bolstered with signs the national economy is staging a stronger than expected recovery and consumer confidence is at its highest levels in a decade.
Confidence among property buyers that borrowing costs will remain low for some years was bolstered in early February when Reserve Bank Governor Philip Lowe stated interest rates would remain at their current record lows for at least another three years.
“We do not expect it to be before 2024, and it is possible that it will be later than this. So interest rates are going to be low for quite a while yet,” said Lowe.
AMP Capital’s Chief Economist Shane Oliver expects average capital city home prices will rise 5 to 10 per cent over the next two years.
“Australian home prices are likely to continue rising over the next two years thanks to record low mortgage rates and the recovery in the economy, with the latter offsetting the phasing down of income support measures and bank payment holidays,” said Oliver.
RBA comfortable with further price rises
With the property market recently surpassing its 2017 highs, the Reserve Bank Governor also appears more than comfortable to let housing prices continue their rise given the positive impact on Australia’s economic recovery.
“It remains to be seen how long this will continue, but sustainable increases in asset prices support household balance sheets and encourage spending through positive wealth effects. Higher housing prices can also encourage additional residential construction,” said Lowe.
