Sydney house prices are poised to rise 6.9 per cent this year, NAB says in its latest forecast, reversing its earlier prediction of a 2.2 per cent decline.
The bank is predicting that, by the end of next year, Sydney prices will increase by another 4.9 per cent for a total of 12 per cent over two years.
Sydney house prices are forecast to rise by 11.8 per cent over two the next two years. afr
NAB upgraded its forecast after the “surprising” resilience in house prices since bottoming out earlier this year.
The bank said the ongoing demand and supply imbalance would offset the drag from reduced borrowing power and affordability as interest rates rise.
“We have revised up our expectation for dwelling prices based on the recent resilience and outlook for strong housing demand in the near term, while supply growth continues to be challenged by higher rates and supply side pressures,” NAB group chief economist Alan Oster wrote.
“While uncertainty is high, we have revised up our expectation for house prices, with flat to slightly positive outcomes (as compared to falls expected previously) for the rest of 2023.”
Melbourne home prices are predicted to rise 2 per cent this year, Brisbane to increase by 5.4 per cent, Adelaide by 3 per cent and Perth by 6 per cent. However, Hobart is set to buck the trend with a 6.4 per cent drop. Across the combined capital cities, prices are set to gain 4.7 per cent.
NAB is still forecasting two more interest rate rises this year to take the cash rate to 4.6 per cent by September. But it also expects interest rates to normalise next year, which it said would support dwelling price growth.
The bank is predicting that by the end of 2024 Melbourne prices will climb by a larger 7.4 per cent while Brisbane’s will increase by a smaller 2.9 per cent. Adelaide and Perth are expected to add 3.7 per cent and 6.2 per cent respectively, but Hobart is predicted to be flat.
“The resilience in house prices has been somewhat surprising given the sheer impact of rising interest rates on borrowing power and affordability,” Mr Oster wrote.
“A strong rise in housing demand appears to have been a key support, with population growth rebounding very strongly since international borders reopened in early 2022.
“This combined with the demand for additional floor space during the pandemic – which will likely take some time to unwind – has significantly added to demand while completions of new properties have fallen despite a large pipeline of work to be completed.”
In April, NAB predicted Melbourne prices would fall by 5.8 per cent this year, Brisbane’s would slump by 7.3 per cent, Hobart to plummet by 13 .9 per cent, Adelaide to drop by 1.5 per cent and Perth to flatten. Across the combined capital cities, the bank predicted prices to drop by 3.8 per cent.
But since bottoming out in February, dwelling prices have risen across most capitals, led by Sydney with 6.3 per cent gain according to CoreLogic.
Prices across the combined capitals are now up 16 per cent from pre-COVID levels and have tracked above 1 per cent month-on-month over the past two months.
The stronger-than-expected housing market performance fuelled a sharp rise in confidence among property professionals during the second quarter, according to NAB’s Residential Property Survey.
The Residential Property Index jumped to 33 points, which is now well above the long-term survey average and a substantial increase from the 9 points recorded during the first quarter.
Confidence levels also rebounded sharply with housing market recovery expectations now much firmer, according to the poll of 350 property professionals.
Property professionals now see national home values rising 0.6 per cent in the next 12 months, with longer-term expectations at 1.7 per cent.
Rising interest rates remained the biggest constraint for buyers of existing property nationally in the second quarter and was also the biggest impediment for buyers in all states except Western Australia, where a lack of stock was considered most problematic and much more so than in any other state.
Access to credit was the next biggest hurdle for buyers and deemed “significant” in all states except WA. Lack of stock, particularly in WA, and price levels had a bigger influence on buyers and was considered a “significant” impediment in all states.
The poll found two out of three property professionals believed fast tracking planning permissions and developments would be most effective in reducing Australia’s housing shortage, while six in 10 favoured financial incentives such as low interest rates and tax incentives.
An earlier version of this story calculated total forecasts over the two-year as gross numbers. This has been updated to reflect a compounded calculation.
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