Westpac: crashing buyer sentiment pulls house prices lower

Westpac has released its Housing Pulse for May, which declares that Australia’s housing market is now “entering a broad–based correction phase that will be largely shaped by the speed and extent of the interest rate tightening”.

Home buyer sentiment has collapsed to its lowest level since the Global Financial Crisis in 2008, with Westpac tipping “an earlier and sharper correction for dwelling prices” of around 11% on the back of a quick rise in the cash rate “to a peak of 2.25% by May 2023 and holding at this level through 2023 and 2024”:

Australia’s housing markets have turned, showing all the hallmarks of a correction phase. Turnover is down 23% nationally from last year’s highs…

Australian housing conditions

Housing–related sentiment has continued to sour… Nationally, the Westpac Melbourne Institute ‘time to buy a dwelling’ index has fallen a further 8.7% since Feb to 77.5 in May. The new cycle low is the weakest read since the GFC fourteen years ago, worse than 82.1 registered when the COVID pandemic first hit in 2020, the 90 recorded during the 2017–18 price correction and the 88.2 recorded at the peak of the 2009–10 interest rate tightening cycle. The 41% drop since the Nov 2020’s is the second steepest 18mth decline since beginning of the series in the mid–1970s, only eclipsed by the collapse in 1988–89. The long run avg is 120…

Price expectations remain positive on net but have been pared back quickly to be a touch below their long run average level…

Australian housing sentiment

The more timely data on auction markets, available weekly to mid–May, point to a further weakening after the RBA’s first 25bp rate hike. Clearance rates have dropped through long run averages in both Sydney and Melbourne. Pre–auction withdrawals have also jumped, the overall picture consistent with a slight pick–up in the pace of price declines…

Australian auction clearance rates

We now expect the RBA to lift the cash rate to 2.25% by May 2023, a much earlier and more aggressive tightening than we envisaged back in Feb… Prices are now forecast to decline 2% over calendar 2022 with a further 8% fall in 2023 and 1% decline in 2024…

Australian house price forecasts

Westpac’s forecast 11% house price fall looks too optimistic should the cash rate rise to 2.25% by May 2023.

If such an increase in the cash rate was passed on to mortgage holders, it would deliver an 80% increase in mortgage interest repayments, which would be the sharpest  rise in Australia’s history.

It is hard to believe that dwelling values nationally would fall only 11% under Westpac’s interest rate scenario.

Unconventional Economist
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Comments

  1. Know IdeaMEMBER

    She’ll be right mate. The fiscal spigots will now be opened full bore at the Federal level.

  2. Goldstandard1MEMBER

    Like I’ve said, based on what I’ve seen in inner east Melb, I’d say prices are already down 10%. All undisclosed in the publications online and of course we’ll find this out (shock!) in 3 months. Hopefully metricon and other horrible businesses like them are gone by then and we can start washing all this mess out. Crash is on alright, how long it lasts before the kitchen sink arives and whether said kitchen sink will do much by then is another question. The good news is it’s all Labor’s fault now. LOL

    • SnappedUpSavvyMEMBER

      i can back that up for sydney, definitely down 10%. Actually right now is good time to buy, you can just about name your price

      • Dave666MEMBER

        “good time to buy”, bhaaa bhaaa
        “name your price” – bhaaa bhaaa
        Thank you – its been a while since I laughed that hard.

  3. Will units fall much? I’m guessing not, since they didn’t rise that much in the last few years.

      • my wife wants to buy brick units in prime Footscray locations and rent them out. I figure now is a good a time as any, since unit prices lagged way behind houses so they don’t have far to fall.

        • That’s the spirit! Although, not quite an animal spirit…
          I am now old and as impotent as the LNP model for the Federal Commission Against Corruption, but if I were you I would borrow as much as the Bank allowed and make a generous offer to secure your dream investment. It doesn’t matter what you pay today, it won’t make a difference in a decade or two.

  4. gballardMEMBER

    A valuer friend of mine who ‘values” in Melbourne’s western suburbs made an anecdotal comment a couple of days ago that the average house on a 650 to 800 sq metre block had fallen by close to $200,000 since November last year.