Westpac: Aussie property prices to fall in 2023

Westpac has released its Red Book for October 2021, which forecasts that dwelling price growth will fall into 2022 before turning negative in 2023:

Australia’s housing markets are again outperforming expectations. Strong price gains have been sustained through recent lockdowns in NSW, Vic and the ACT with even the most heavily-affected markets recording double-digit annualised growth rates. With these markets now reopening, any residual drag will disappear.

That points to a very strong 22% gain for the full year. We expect momentum to carry into early 2022 but slow as the year unfolds, with an 8% gain for the full year, before moving into a correction in 2023. The main factors driving the cycle relate to affordability and policy tightening. The wild cards are investors and potential impacts from slow population growth.

Prices are now moving into stretched territory. The Sydney and Melbourne markets are well above their previous peaks (+18% and +10% respectively). The Brisbane and Perth markets are also well above their 2017-18 levels although they did not get as stretched during this previous price cycle.

Our preferred measure of affordability is the share of income required to purchase a median-priced dwelling, including raising a deposit and making mortgage repayments. This shows that even allowing for lower interest rates, affordability is becoming very stretched with the major capital city markets near historical extremes.

Meanwhile the ‘policy trigger’ for a slowdown is coming into frame. APRA’s 50bp increase in the buffer rate applied to loan serviceability assessments marks the first step in what we expect to be an incremental tightening in ‘macroprudential’ policy. High debt-income and high LVR loans are likely to be the next area of focus.

These measures will take some of the heat out but will lower price growth by a few percentage points rather than drive a sudden stop. The more meaningful policy-headwinds will come once the next interest rate tightening cycle comes into frame. We expect the RBA to begin raising rates in early 2023, much earlier than the current indication of 2024.

Housing-related consumer sentiment is already well past its peak and is turning sharply lower in areas and markets sensitive to deteriorating affordability. This suggests turnover will weaken significantly once delta ‘reopening’ surges pass. Note that APRA’s announcement came mid-way through the Oct survey week.

While I suck at forecasting, I believe that Westpac’s forecasts look sensible and realistic.

Unconventional Economist
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Comments

  1. Sing it with me Baby Boomers
    https://www.youtube.com/watch?v=LHEsE9yN2CY&list=RDLHEsE9yN2CY&start_radio=1

    This 60s stuff. Its catchy.

    So now we have evidence that Boomers have murdered off the young generations of Australia, can we now kill off the Baby Boomers and put them into an early grave? Its just a thought.

    Where’s Brenton Terrant when you need him? Such a wonderful guy.

    We can have a bonfire. One match and these houses go up in flames. I can bring marshmallows?

    Its party time \o/

  2. Does that mean Martin North will have no friends anymore?

    Poor bugger. Retirement must be hard for him in his old age.

    A true humanitarian that man. At least he can move back to the UK.

    • Goldstandard1MEMBER

      Mate, even Joye boy is saying it’s going lower. As predicted its about to go full reverse. Should take bets how long it will take to reverse the gains of the last 12 months.

      • Bcnich say 4 to 6 months to reverse all gains since pandemic boom. I would wager that /- 18 weeks.

  3. So with <10% expected price corrections and the market pricing 7+ rate hikes over that time….. affordability will deteriorate further?

    Even with a complete reversal of post COVID gains (which would be chalked up as a 'crash' by any historical standards) , if market rate expectations are correct, there will be zero change to affordability without fire sales (which would imply even larger price corrections), until of course the RBA reverses course… As MB has been suggesting, even supply constraint driven inflation tends to dissipate quickly when demand craters!

    • Closing my recent term deposit, I was told they’ve been overwhelmed with others doing the same. No one wants to keep their savings in the bank anymore. 0.05% is bullshit, I put my money to work elsewhere.

      RBA will need to print whether they like it not, no one wants to fund aussie debt. All the idiot property speculators leveraged to the hilt will get a nice shock when rates have to go up.

      The banks can already see this data of funds being withdrawn, they know what’s coming.

  4. Display NameMEMBER

    No one can lose any money. Another TFF to shore up bank margins, negative cash rate and we are good for another 20% house price rise next year. Not done yet.

    • If this inflation beast actually sticks, tff will be gone in a quick minute. A million $$ ATM in every household with low servicing (IR) costs is the last thing a central bank will need when fighting inflation.
      Reckon if they keep it, it will come with the strongest restrictions on its use for only repaying debt. Which is a pin for housing anyway, the bubble needs debt growth to sustain.
      I think it is useful to read of commentary on inflation from history… described using raw words like devil, evil, deadly, violent, ruin.

      And then there are those govt deficits we raked up during lockdowns that “dont matter” until they do. Stimulation in an inflationary environment will just turbo charge the bond yields more and govt deficit will cop it with higher burden of debt servicing for the govt. And round and round she goes. Doing exactly this is how a country spirals into Zimbabwe. IMF has already been sniffing around asking questions of RBA, deciding to review the RBA “because it has been a while” *interesting timing*
      Probably want to know rba had the right processes to do the needful when the time comes and not just print money into inflation.

      The irony here will be that wealth effect they so much relied on to stimulate the economy is going to be the last thing they need to fight a bigger evil if it infact has turned up at the door.

  5. Magnus MaximusMEMBER

    So up 22% in 2021, 8% in 2022 and then a “crash” of 1% in 2023 which will require emergency action of negative rates, TFF and HomeKeeper

  6. there is nothing the property political complex wont consider to prop up the market – so nothing should surprise us as they dredge the kitchen sink to feed the vampire squid

    • That explains the sudden proliferation of scare stories in the MSM, warning of 33% falls with a 1% increase in the cash rate. Watch the forecasts change again five minutes before the kitchen sink gets thrown at it.