Westpac’s House Price Forecast
This week we are looking at the continuing stability in weekly sales and listings, the continuing decline in rental listings, the proposed Government changes to credit availability and Westpac’s recent house price forecast.
Sales increased by 8% this week to 883 but are still in the same consistent range while listings at 10,693 are also in line with last week. Rental properties declined by 3% and broke through the 3,000 listing mark to 2,945. Incredibly rental listings are 8% lower than just 4 weeks ago.
Back in 2018 there was a major concern about Sydney housing affordability and the possibility of a bursting property bubble. The steep increase in Sydney property prices was a result of investor speculation being fueled by low interest rates. Two courses of action were taken. There was enforcement of lending standards and regulations, in particular expenditure verification of loan applicants. This was partially a response to the Banking Royal Commission by the banks. The other was a reduction in the number of interest only loans a lender could carry.
Well two years and a pandemic later the Government has announced that it will roll back the expenditure verification requirements to help stimulate the economy. The banks will require less information making it easier and quicker to get approval. However there will be a greater accountability on the applicant to provide accurate information.
The Treasurer Josh Frydenberg said
“Our current regulatory framework, with respect to lending, is not fit for purpose. It’s become overly prescriptive, and responsible lending has become restrictive lending.”
The Reserve Bank Governor Phillip Lowe agreed with the change of direction stating last month
“The pendulum has probably swung a bit too far to blaming the bank if a loan goes bad because the bank didn’t understand the customer. If it had done proper due diligence — this is the mindset of some — the bank would never have made the loan.”
Although this seems like a reasonable policy backflip, what we would like to see in WA is increased availability of interest only loans. This will help encourage investors back into the market and at the same time help existing investors who may be struggling to afford principle and interest. WA needs more investors in the real estate market and an increase in the supply of rental properties, otherwise there could be a real looming shortage of accommodation for tenants.
Just recently Westpac economists changed their forecasts on the Australian property market. After previously forecasting a 10% fall nationally by June 2021, they now predict a 5% fall nationally. I seem to remember at the start of the lockdowns forecasts of 20-30% falls nationwide. Perth and Adelaide markets were, in large, partly responsible for the altered forecast after proving far more resilient than anticipated.
Considering prices have fallen 2.7% nationally since April, this means there should only be a further 2.3% fall between now and June 2021. The biggest falls are obviously going to be in Melbourne where a 12% decline is forecast. Following on from June 2021, Perth is forecast to increase by 18%, or 9% in 2021-22 and 9% in 2022-23, as shown in the graph below. If the forecasts are correct, this is welcome news for Perth real estate after the past 5 years.
We are still waiting on the WA Treasury Department for a more detailed breakdown of employment.
Reproduced with permission from:
in house economist from Michael Keil @ michaelkeil.com