Despite concerns over a significant drop in Australia's property prices, Westpac has projected that the decline will not be as severe as previously thought.
The major bank expects house prices to rise due to increased migration, higher construction costs limiting new supply, and a scarcity of available properties.
In February this year, new capital city listings were down 17% compared to the previous year and 11.9% below the prior five-year average.
Westpac sees "strong indicators of stabilisation" within the property market and has projected a 1% increase in Sydney house prices this year, as opposed to the previously forecasted 8% decrease.
For Melbourne and Brisbane, house prices are estimated to fall 1% this year, while Perth and national prices are expected to stabilize.
The Reserve Bank of Australia’s (RBA) ten consecutive interest rate hikes have approximately doubled mortgage rates and reduced borrowing capacity by around 30%.
If home prices stay at current high levels future home buyers are rightfully asking themselves wether it's cheaper to buy or to build a new home in Perth.
Property Prices Could Potentially Surge in 2024
Westpac chief economist Bill Evans stated that although house prices are anticipated to remain stagnant this year, they could potentially surge in 2024.
"Australia's housing correction is mostly complete, with several factors contributing to stabilisation," said Mr. Evans and senior economist Matthew Hassan in a market update.
"Prices are now expected to increase by 5% in 2024, revised up from 2%."
Westpac predicts that by 2024, house prices will rise by 5% in both Sydney and Melbourne, 6% in Brisbane, and 8% in Perth.
Updated Prediction Based on Current Property Data
Westpac now predicts a 10% national decrease in house prices, a significant change from the prior 16% prediction.
Prices remained flat across the country in February before recording a 0.8% increase in March and are on track for a similar gain in April based on current data.
"Further rate cuts and an improving economic backdrop will see momentum carry into 2025, although affordability is likely to constrain upside prospects," the bank's economists said.
Sydney House Prices Leading The Pack
Sydney's luxury market is leading the pack among major capital city markets, but economists caution that headwinds could hinder these gains.
"Another major slide seems unlikely, although gains will be difficult to maintain given interest rates and broader economic headwinds," the economists warned.
A rate hike in May is expected to temporarily halt the improvement in housing-related sentiment, and an increase in 'on-market' supply is also likely to test the depth of demand.
RBA’s Ability To Control Inflation Is Crucial
The risk of the Reserve Bank being unable to control inflation means rate hikes could still occur in the latter half of the year and possibly continue into 2024 if persistent high inflation prevents the central bank from reversing the hikes.
Many economists support another rate hike next month, which would raise the cash rate to 3.85%.
HSBC Now Expects An Even Lower Decline for 2023
HSBC revised its forecast for the Australian housing market in 2023 from a 6-8% decline to a drop of just 1-3%. HSBC Australia and NZ chief economist Paul Bloxham acknowledged that migration had driven significant demand.
"Population growth has been even stronger than we had factored in, and the leading indicators of new construction have been weaker than expected," he said.
However, a significant rebound in prices is not anticipated, given the fixed-rate mortgage resets and expected economic slowdown.