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Housing Market Predicted to Grow 7% by end of 2023

According to the latest forecast from Westpac economists, the housing market is predicted to experience a 7% growth in prices by the end of 2023. Despite rate hikes, the housing market is outperforming expectations and showing signs of a broadening recovery. This growth is led by prices, with the volume of activity and demand still relatively subdued.

Dwelling prices in the five major capital city markets have risen 4% over the year to date, representing a 5.2% rebound from February’s low. Sydney is expected to lead the major capital cities with a price growth of 10% this year, followed by Perth with 8% growth.

There are two major drivers behind the current house-price upturn. Firstly, there has been a substantial increase in migration inflows, coupled with a tightening in rental markets and low levels of ‘on-market’ supply. Secondly, there is a significant accumulated excess savings across the household sector from pandemic lockdowns. Higher income households, who have been able to grow their savings over the past two years, are under less financial pressure and can use their funds to purchase property. This behavior may explain why first home buyer activity remains surprisingly elevated despite worsening affordability constraints.

However, Westpac economist Matthew Hassan warns that the housing market is currently in an unusual cycle and is likely to face affordability constraints soon. Traditionally, housing recoveries tend to flow through to prices when the Reserve Bank of Australia (RBA) is cutting interest rates or poised to do so. The market also typically sees a sustained lift in turnover. Population drivers tend to act more slowly and indirectly through tightening rental markets and attracting investor activity.

The supply of housing is another factor to be cautious about. Any potential comeback from sellers could make price gains harder to sustain. Mr. Hassan expects price growth to slow to 4% in 2024 and 2025, despite an expected easing in interest rates by the third quarter of next year. Affordability constraints will play a significant role in this slowdown.

PropTrack, another property market forecast provider, also predicts growth in housing markets of 2% to 5% by the end of 2023. Similar to Westpac’s projections, PropTrack identifies limited supply as a major contributor to the growth in prices. However, the outlook for 2024 remains uncertain due to a large group of fixed-rate borrowers’ mortgages set to expire. This could lead to changes in interest rates for these borrowers.

In conclusion, the housing market in Australia is experiencing an abnormal upturn, with prices expected to grow by 7% by the end of 2023. This growth is driven by factors such as increased migration, excess savings from pandemic lockdowns, and limited supply. However, affordability constraints and the potential comeback of sellers could slow down price gains in the coming years. The outlook for 2024 remains uncertain, but there could be changes in interest rates for borrowers as fixed-rate mortgages expire.


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