House prices to jump over 20 per cent, with further growth next year: ANZ

Property prices across the capital cities are expected to climb 20 per cent by the year's
end Photo: Greg Briggs

House prices to jump over
20 per cent, with further
growth next year: ANZ
KATE BURKETWITTERJOURNALIST AUG 26, 2021

ANZ has tipped house prices to jump by more than 20 per cent this year,
lifting its forecasts despite the lockdowns, off the back of the stronger than
expected property market.
Property prices are expected to rise 24 per cent in Canberra by year’s end
and 23 per cent in Sydney and Hobart, according to the bank’s latest
forecasts, released on Wednesday. Gains of 21 per cent and 20 per cent
are expected in Brisbane and Melbourne, respectively.
ANZ is the latest of the big banks to revise its forecasts upwards amid
lockdowns, which ANZ senior economist Felicity Emmett said were unlikely
to derail the strength of the housing market.
“[We’ve updated our forecasts] because of how strong prices have been;
that includes through the lockdown period,” Ms Emmett said. “We did think
by this time of the year that the momentum in prices would have pulled
back.”
Instead, even in Sydney – which has been in lockdown for two months –
prices continued to climb.

“When you look at some of the leading indicators, auction clearance rates,
sales to listing ratios, you can see the market is still very very tight and
there hasn’t been much of a drop-off in demand or interest in the face of
these quite heavy lockdowns,” Ms Emmett said.
In Melbourne, where the clearance rate had been harder hit by lockdown
restrictions – which include a complete ban on property inspections –
prices were still holding up well, Ms Emmett added.

Source: CoreLogic, ANZ Research. Note: Perth prices subject to revisions
from CoreLogic
House prices across the capital cities are expected to jump more than 20
per cent in 2021, up from forecasted gains of between 15-20 per cent, Ms
Emmett said, before climbing a further 7 per cent next year.
The updated forecasts are similar to those put out by the Commonwealth
Bank (CBA) earlier this month. Gareth Aird, head of Australian economics
at the CBA, said he expected national dwelling prices to rise by 20 per cent
this year before dropping to 7 per cent growth next year.
Meanwhile, NAB’s updated forecast in July has pegged house prices to
jump 18.5 per cent in 2021 and 3.6 per cent next year, across the

combined capitals, while Westpac has forecast a jump of 18 per cent this
year and 5 per cent in 2022.
Sydney was expected to see the largest price hike on CBA’s forecasts, with
24 per cent growth tipped for 2021. Mr Aird said he expected the market to
be largely unaffected by lockdown, noting momentum remained buoyant
with buyers and sellers more confident now than in the early stages of the
pandemic.
While momentum would slow in 2022 due to affordability constraints, higher
interest rates in years to come would be the real circuit breaker for the
market.
Ms Emmett also flagged interest rates as the main driver of the property
market’s strength, but noted declining affordability was already weighing on
buyer demand.

The average home value in Sydney is more than nine times the average
income. Photo: Supplied
In Sydney, the most expensive capital city, the average home value was
more than nine times the average income, and housing affordability had
deteriorated across all metrics and all states, with rental affordability also
deteriorating sharply, the ANZ report noted.
The sharp drop in the Westpac–Melbourne Institute’s “Time to buy a
dwelling” index, at its second-lowest level since 2010, showed affordability

was already weighing on demand, Ms Emmett said, as did the pullback in
first-home buyers – for whom the average loan size hit a peak of $456,000
in June.
On top of affordability limitations, Ms Emmett said she still expected to see
macroprudential controls introduced to cool the market as investor
financing surged and credit growth outpaced incomes growth by a
significant margin. However, she noted the economic impact of the latest
lockdowns would likely delay any intervention by the regulators.
“Interest rates are staying low for some time; they’re driving a lot of the
market, and we’re seeing high borrowing … I think regulators will be
concerned by the fact the growth in debt is so much higher than incomes,”
she said.
While household debt levels are concerningly high, low interest rates have
enabled people to get further ahead on their repayments. Almost 40 per
cent of owner-occupiers with mortgages have over a year of prepayments
in their loans or offset accounts, as do about a third of investors, the report
noted. Housing debt as a multiple of household income was also down a
little from its 2019 peak.
Ms Emmett did not hold concerns about an increase in forced sales amid
lockdown. While arrears have drifted up over the past year, the general
trend was not that different to that of past decades, and arrears were still
low by international standards. Rapidly rising prices had also materially
reduced the number of loans with negative equity, the report said.
She added loan deferrals were also well down on the levels seen in the
early stages of the pandemic,