Housing recovery to continue to year end: Westpac 

Westpac’s August 2023 Housing Pulse report has painted a brighter outlook for the housing market, depicting signs of recovery going forward.

The report revealed that better-than-inflation reads have suggested that further interest rate rises may be unlikely, resulting in improved housing forecasts.

Westpac’s consumer housing sentiment index pointed to the upturn continuing through to the end of the year but also highlighted a growing tension between rising house prices (which are forecast to increase), with deteriorating affordability and languishing buyer sentiment.

The report outlined that “surging migration” would be an important driver as conditions continue to challenge the recovery of the market, such as the forecast rise in unemployment.

However, the researchers suggested that the growth in the unemployment rate would “come through later and be milder”, with a peak of 4.8 per cent versus 5.5 per cent previously.

The report read: “The impetus from gains looks to be mainly coming from the sharp acceleration in migration inflows and an associated tightening in rental markets, all against a backdrop of low levels of ‘on-market’ supply.

“The turnaround in price growth has been strongest for markets where population growth has seen the sharpest pickup and much more muted in markets that have seen a less pronounced shift.

“The same pattern is evident when we look at changes in rental vacancy rates and rental yields, and, to a lesser extent, when comparing shifts in on-market listings.”

Westpac labelled the housing market recovery as a “front-loaded price upturn”, declaring that previous recoveries only tended to flow through to prices once the Reserve Bank of Australia had begun cutting rates (or was poised to do so), with the lift in prices generally following a prolonged boost in turnover.

Dwelling prices are now forecast to rise 7 per cent nationally in 2023, rather than remain flat, but Westpac has forecast that the new-found growth would stall in 2024 and 2025.

It said: “Westpac expects current momentum to be better sustained with prices rising 7 per cent over calendar 2023 but with growth slowing as affordability constraints emerge, prices forecast to rise 4 per cent in 2024 and 2025 despite rate cuts.

“Near term, the main uncertainty surrounds the extent to which a lift in ‘on-market’ supply slows price gains. Over the medium term however, the outlook depends on how tensions between a physical undersupply of housing and stretched affordability plays out, with investors and high income households being key wild cards.”

According to the report, the upturn in the housing market has so far been most established in NSW, with “prices posting further gains, turnover showing clearer signs of stabilising and sentiment overall now pointing to modest gains near term”.

However, this upturn could be tested, as a lift in new listings would stretch the depth of demand while worsening affordability could become more of a constraint for buyers.

Indeed, Westpac said NSW prices could be losing some momentum highlighting that monthly gains have fallen slightly; from 1.8 per cent in June, 0.9 per cent in July, and forecast for 1.1 per cent in August.

In Victoria, the housing market was having a more sluggish recovery, with a ‘relative underperformance likely to continue’, according to the bank, due to sellers not returning while the supply and demand balance is not as tight as in other markets.

Melbourne dwelling prices were reported as having “muted gains”, a 0.7 per cent increase in June followed by a 0.3 per cent increase in July, with August on track for a 0.6 per cent gain.

The major bank labelled the Queensland housing market as having had “a particularly wild ride in 2022, strong gains in the first half giving way to a sudden stop in the middle of the year”, and after a slow start in 2023, it found conditions have significantly strengthened.

Westpac said Brisbane prices have had strong gains over the past three months with a 1.3 per cent increase in June, 1.4 per cent in July, and on track for a 1.5 per cent gain in August.

[Related: Housing sentiment lowest on record, Westpac data shows]