Banks very rarely predict the right things. 

Just as I have already pointed out on my blog post about the Property Bubble. Unfortunately most people follow this type of news… So here is what Westpac reports says about the future of Property in Australia.

Australia’s housing markets are again outperforming expectations.

Prices have continued to post strong gains despite recently extended lockdowns in NSW, Victoria, and the ACT.

Even in the most heavily affected markets of Sydney, Melbourne, and Canberra, price growth has sustained a strong double-digit annual pace.

With reopening insight, the dampening effects of lockdowns will now drop out of the picture.

That points to a very strong 22% gain for the full calendar year.

Prices across the major capital cities are already up 17% over the year to September and are tracking for a 1.5% gain in October.

We expect reopening boosts to more than offset any initial drags from recently announced macro-prudential measures.

As such a further 3% gain over the last two months of the year is likely, bringing the cumulative rise to 22% for the full year.

This strong momentum will carry into 2022.

However, the pace of gains is expected to slow, leveling out over the course of next year before moving into a correction phase in 2023.

As always there are many moving parts to the price outlook.

The main ones relate to affordability and policy tightening by both the Australian Prudential Regulatory Authority (APRA) and the RBA.

The wild cards are around investor activity and potential impacts from an extended period of slow population growth.

The more meaningful policy-related headwinds centre on the next interest rate tightening cycle and are likely to emerge over the second half of next year.

Westpac expects the RBA to achieve its key policy objectives – full employment, a lift in wages growth, and inflation back at the middle of the 2-3% target band – by the end of next year, setting the scene for the beginning of an official interest rate tightening cycle in 2023.

This is earlier than the Bank itself currently expects, with the RBA Governor indicating that the preconditions for interest rate increases are unlikely to be in place before 2024.

Affordability drivers will see investors become more prominent over the next year.

If we were to see a more meaningful pick-up in investor activity, that could drive stronger and more persistent price gains near term but may also result in a more material correction from 2023.

The effectiveness of MPP measures on investors will be important.

APRA imposed speed limits on investor credit growth in 2014 and a cap on the share of interest-only loans in 2017 while more recently we have seen the RBNZ put tighter caps on the share of high LVR investor loans.

Expectations of capital gains and rental yields will also be important factors for investors.

The Westpac Melbourne Institute Index of House Price Expectations remains very bullish, near eight-year highs despite some softening in recent months.

The prolonged period of underbuilding that preceded the latest building cycle means markets are coming into this with an accumulated deficit of dwelling stock.

And so far, the combination of strong building and slow population growth has not resulted in significant overhangs of stock except in a few specific sub-markets –rental vacancy rates for example remain tight in most markets, Melbourne, with vacancy rates at 5.7%, the one notable exception.

However, that may shift as new completions come through, particularly if, as we expect, a return to significant net migration inflows is slow to come through.

However, Westpac still expects the market to slow over the course of 2022 as MPP; prospects of increased rates; and affordability reaching record lows trigger a correction phase that will begin in 2023 and is likely to extend into 2024.

Instead of waiting for others predictions make sure you take control of your future and start investing at your own pace. Remember is not about timing the market but time in the market! Need help? Get in touch!