Australia’s hot hosing market is to be cooled down in the months to come and this is due to several factors such as affordability restrains, ceiling on lending that would put a lid on rising prices said Westpac Banking Corp.
Accordingly, the bank has forecasted 15% property gains, changing its previous prediction of 10% in response to the current surge, retaining its overall two-year expectation of a 20% increase. It observed that Sydney dwelling prices increased 3.7% last month, with the median property gaining more than A$1,000 ($777) a day.
“While we remain bullish on Australia’s housing outlook, we do not expect the red-hot pace of the first few months of 2021 to continue,” said Matthew Hassan, senior economist at Westpac. “The general pattern of dwelling price cycles often sees strong bursts followed by an extended period of flattening.”
Australia’s housing market has been supported by record low borrowing rates, an improving economic conditions, an under-supply of new houses and government incentives. The first quarter recorded a 5.6% jump across the major capital cities, with March recoding the biggest hike in 32 years.
Booming housing market
According to Westpac, there were four major reasons for cooling down the market; sellers are returning to market, new listings could still depend on strong demand and the balance is shifting;
Affordability: “The air gets pretty thin at these levels, especially for would-be first-time buyers,” Hassan said. The “time to buy a dwelling” index in Westpac’s Consumer Sentiment survey is reduced almost 20% from a November high. The index has picked “every twist and turn” in the housing market since the early 1970s, usually with a lead of three to six months.
Macro-prudential policy: Investors have been passive to date. However, this is expected change as prices surge and affordability is increased. It is expected that the investors driving even faster credit growth, leading to potential oversupply of houses.
Westpac perceives this would take place through 2022, reflecting stopped population growth with immigration stalled during last year’s Covid lockdown, and strong growth in construction responding to government incentives.
“While that will not be a factor this time, we still expect the boom to run out of steam as affordability pressures impact this year and prudential measures come into frame in 2022,” Hassan said.
Owing to many factors the Australian housing market may cool down and chief among them is the affordability. It may gain momentum at a slow pace as economy starts to rebound to pre-Covid levels.
