In the long arc of a pandemic that has unsettled ordinary lives, Westpac has softened its gloomy view of Australian house prices, now expecting a modest fall of about 5 per cent rather than 10. Its economists see the cities holding up better than feared, but they warn that the hard part has not yet passed: when loan repayment holidays end, families and small businesses that cannot keep paying may be forced to sell, and prices may dip before a strong recovery later in 2021. Fitch, more cautious, expects a steeper fall as immigration slows, so the coming months will show which story the market c
Westpac Forecasts 15 Per Cent House Price Rebound by Late 2021 After Distressed-Sales Dip
Many mortgage and business loan holders are expected to be unable to meet ongoing payments once repayment holidays end.
Westpac has downgraded the downgrade, but not the pain
Mark
Westpac used to expect a 10 per cent fall and now says 5. What changed?
Mimi
Their explanation is that capital city markets held up better than they thought through the recession. That's the whole reason given.
Mark
And then a 15 per cent rise from June 2021?
Mimi
Over two years, yes. They lean on low rates, government support, better affordability, and a vaccine arriving next year.
Luke
Worth saying that's a forecast built on conditions that haven't happened yet. The vaccine is an assumption, not a fact.
Mark
What's the risk in between?
Mimi
Loan repayment holidays ending. Nearly 630,000 housing and small business loans, about $240 billion, are still paused, and many borrowers are expected to struggle to pay.
Luke
Careful, though. Expected to struggle is Westpac's view. The source doesn't say how many will actually be forced to sell.
Mark
Does everyone agree on direction?
Mimi
No. Fitch sees a 5 to 10 per cent fall over 12 to 18 months, pointing to weak immigration and population growth of 0.7 per cent.
Luke
And the two aren't measuring identical windows, so they're not a clean head-to-head. Both are projections, and the city numbers, like Melbourne at minus 12 per cent, are estimates too.
Der Puls
- A bank that predicted a 10 per cent slide has revised it to 5, yet the calm is provisional and fragile.
- About 630,000 loans worth roughly $240 billion sit on pause, and their resumption looms like a deadline.
- Melbourne is bracing for falls in the December quarter while Perth holds flat and Adelaide edges up.
- Economists are steering by hopes of low rates, government support and a vaccine, aiming for a rebound near 15 per cent by late 2021.
- Fitch's warning of a 5 to 10 per cent drop, driven by sharply weaker immigration, pulls the outlook back toward caution.
In the long arc of a pandemic that has unsettled ordinary lives, Westpac has softened its gloomy view of Australian house prices, now expecting a modest fall of about 5 per cent rather than 10. Its economists see the cities holding up better than feared, but they warn that the hard part has not yet passed: when loan repayment holidays end, families and small businesses that cannot keep paying may be forced to sell, and prices may dip before a strong recovery later in 2021. Fitch, more cautious, expects a steeper fall as immigration slows, so the coming months will show which story the market chooses.
Westpac has revised its forecast for Australian house prices. Where its economists once expected a national fall of 10 per cent through to mid next year, they now see something closer to 5 per cent, because the capital cities have held up better than the coronavirus recession seemed to threaten.
The recovery forecast is the bolder part. Bill Evans and Matthew Hassan expect prices to rebound by around 15 per cent in the two years from June 2021, supported by very low interest rates, government backing, improving affordability and a vaccine expected next year. Before that, though, the economists foresee a difficult passage. Prices should be broadly stable for the next six months, with Melbourne the exception, falling again in the December quarter.
The real danger lies in the end of loan repayment holidays. Around 630,000 housing and small business loans, worth roughly $240 billion, are still paused. When those holidays finish, many borrowers may be unable to keep up, and the resulting urgent sales could push prices down further before the market lifts again.
Not everyone shares this view. Fitch expects prices to fall 5 to 10 per cent over the next year and a half, as net immigration slumps to levels not seen in four decades. For now, the questions are whether Melbourne's numbers worsen and whether the paused loans can be resumed without forcing a wave of sales.
Westpac has changed its mind about how badly the pandemic will hurt Australian house prices, though not about whether it will hurt them at all. In a new forecast, the bank's chief economist Bill Evans and senior economist Matthew Hassan, named in the source as Matthew Hassahad, say prices could surge by almost 15 per cent in late 2021, once a period of "distressed" sales has run its course.
The starting point is a downgrade of the downgrade. Back in March, the two economists predicted the national average dwelling price would fall 10 per cent between April this year and June next year. They now expect a drop of 5 per cent. Their reasoning is that capital city markets have proved more resilient to the coronavirus-induced recession than they first anticipated.
The recovery piece is the bolder claim. In the two years from June 2021, they predict dwelling prices will rebound by 15 per cent. "We are much more optimistic about the pace of price appreciation over the following two years," they wrote. They point to sustained low interest rates, likely to go even lower than current levels, along with continued support from federal and state governments, improved affordability and a strengthening economic recovery. A vaccine becoming available next year would add to the lift, they said.
Before that, there is a harder stretch. Over the next six months or so, they expect prices to stay relatively stable, with Melbourne the exception: it will lag the other states and still see falls in the December quarter. The worst is expected to follow when loan repayment holidays end. Many mortgage and business loan holders are expected to be unable to meet ongoing payments, which could produce more "urgent and distressed" sales. In the economists' words, the main effect on the housing market in this phase comes through financial distress, with urgent sales acting as a catalyst for weaker prices. "The fourth phase will come once this selling pressure has worked through the system and prices lift again," they wrote.
The scale of what is paused is considerable. Estimates point to nearly 630,000 housing and small business loan customers still having repayments on hold, with the loans valued at about $240 billion.
City by city, Westpac expects Melbourne prices to fall 12 per cent between April and June next year, and Sydney prices to decline 5 per cent. Brisbane is tipped to fall by at least 2 per cent, Perth is predicted to stay flat, and Adelaide is expected to rise 2 per cent over the same period.
Not everyone is as upbeat. Rating agency Fitch predicts Australian house prices will fall 5 to 10 per cent over the next 12 to 18 months as net immigration weakens sharply. It estimates population growth will reach just 0.7 per cent in 2020, a level not seen in the past 40 years, down from 1.4 per cent in 2019. Fitch said the reduction in immigration between FY19 and FY21 would imply demand for around 76,000 fewer dwellings than otherwise. It also expects property demand to be hit by fewer adult children moving into their own homes, because of jobs market uncertainty during the recession.
The two forecasts leave a clear set of things to watch: Melbourne's December-quarter numbers, and what happens to those 630,000 paused loans when the repayment holidays finally end.
Bemerkenswerte Zitate
We are much more optimistic about the pace of price appreciation over the following two years.— Bill Evans and Matthew Hassan, Westpac economists
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