A quicker-than-expected housing recovery, triggered by the relatively low supply of listings and the resurgence of buyers, could propel home prices as much as 7 per cent higher nationally through the 2024 financial year, according to a panel of economists and analysts.
Home values have already risen 6.3 per cent in the six months to September, according to CoreLogic, a rebound that has defied the fastest rate-rising cycle in three decades, after demand initially cooled.
That momentum supported unanimous expectations that house prices nationally would increase in FY24, according to a survey of 10 economists and analysts conducted by The Australian Financial Review.
Jarden chief economist Carlos Cacho expects a 6.5 per cent increase in house prices nationally through 2023-24.
“We do not see this price growth as sustainable or backed by fundamentals, but equally don’t see what will halt the current housing recovery,” he said.
“The key drivers of this increase are expected to be continued limited listings, particularly of family homes, along with positive sentiment towards housing, given households’ expectations of RBA easing next year. That said, we don’t expect rate cuts until late 2024, at the earliest, which may challenge this positive sentiment.”
Earlier this month, the Reserve Bank of Australia said it was keeping an eye on the turnaround in the housing market, which has pushed prices nationally close to the peak of April last year.
“Members noted that the stronger-than-expected recovery in the established housing market might provide some support to household consumption in the period ahead,” it said after its October 3 meeting.
The economists and analysts were polled just before last week’s stronger-than-expected CPI figures, which in turn have raised expectations the RBA might need to step in again with further rate rises before Christmas. Higher borrowing costs could weigh on house price growth.
Barrenjoey economist Jo Masters and AMP chief economist Shane Oliver expect home prices nationally to rise by 6.6 per cent and 7 per cent, respectively, through FY24.
Both believe the low supply will support house price growth but they also expect the pace of price increases to slow down.
“This house price increase is a more modest pace than in recent quarters, where prices have been supported by very low stock on market, around one-third lower than the pre-pandemic average,” Ms Masters said.
Mr Oliver said: “Property price gains will continue into next year albeit at a slowing pace as high interest rates continue and unemployment rises, which will constrain demand and potentially boost supply.”
But he warned that his confidence in his forecasts – he expects Sydney prices to gain 7 per cent and Melbourne 4 per cent – was “lower than normal”.
“The risk is high of another leg down in prices in the next year given the lagged impact of rate hikes so far, the risk of even more rate hikes to come and the rising risk of a large rise in unemployment,” he said.
SQM Research’s Louis Christopher expects the biggest price increases. He predicts that Sydney house prices will rise by as much as 11 per cent and Melbourne prices by 7 per cent, highlighting the expected surge in immigrants this year. But those forecasts are contingent on stable interest rates.
“If the RBA lifts next month, that would change our forecasts,” Mr Christopher said.
Cameron Kusher, PropTrack’s executive manager for economic research, expects prices to rise 4 per cent nationally and by the same amount in Sydney, with the strongest growth in Perth, at 7 per cent. He also singled out the rapid rate of migration as a key support for the housing market.
“Even if it does slow in line with projections it will remain much higher than pre-pandemic rates,” he said.
Another phenomenon to watch, according to CBRE’s regional research chief Sameer Chopra, is the prospect of capital values growing more aggressively in the early and late stages of this cycle.
“This is because of how we expect ‘supply shock – early stage’ and ‘interest rate relief – late stage’ to play out, he said.
Ben Phillips, associate professor at the Australian National University, says price growth will be strongest in Perth, at 13 per cent, and Adelaide, at 15 per cent.
“South Australia and Western Australia are running pretty hot. Both have strong economies at the moment and plenty of momentum in both house prices and their rental markets.”
Among the economists polled by The Australian Financial Review, only Oxford Economics’ Maree Kilroy predicted house prices falling in a capital city. She tips the Melbourne market to drop 1 per cent.
Households and the domestic financial system look well fortified to withstand the 4 percentage points of interest rate increases since May last year, according to most survey respondents.
But two economists – Barrenjoey’s Ms Masters and MSCI’s Ben Martin-Henry – warn that household savings will be eroded through next year. As well, the number of fixed mortgages rolling off and subsequently exposed to higher rates during the second half this year will double in value compared with the first half, according to Ms Masters.
Four in five households were expected to have exhausted their savings by early next year, she said.
“We expect arrears will rise, but it will be only toward the end of FY24 that the impact of 400bp of rate hikes is reflected in +90 day arrears, which we expect to rise to slightly above the pre-pandemic average,” she said.
Nevertheless, the respondents broadly expect the rate of arrears to increase only modestly through FY24 even though more borrowers are subjected to a jump in finance costs.
Mr Oliver said the rise in delinquencies and arrears would be moderate and manageable by the banks unless a recession was to occur.
Jarden’s Mr Cacho and Knight & Frank chief economist Ben Burston agreed. Both predict a modest rise in arrears next year, which will be contained to below previous peaks because of the strong labour market and substantial household savings buffers.
“We expect mortgage arrears to continue to drift higher towards ‘normalised’ levels as borrowers roll off fixed rates and run down their buffers. However, given the very low rate of negative equity (0.15 per cent on the RBA’s estimates), we see mortgage losses remaining minimal,” Mr Cacho said.
Ray White chief economist Nerida Conisbee said concerns about the so-called “mortgage “cliff” – as borrowers on cheap fixed rates move into loans at far higher rates – were overblown.
There had been a rise in stressed sales, as opposed to forced sales, particularly among investors where interest rate rises had made property investments less attractive, she said.
“Owner-occupiers appear to be holding on. This isn’t surprising given that most will look to other cost-saving measures to hold on to their homes,” she said.
“The reality is that banks are incredibly profitable at the moment and are generally assisting people under mortgage stress.”
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