AFR Thursday 29 July 2021 page 4
House prices will increase 18 per cent across the country in 2021, according to Westpac, including 22 per cent in Sydney despite the long lockdown, setting the scene for tightening of lending criteria early next year.
Prices are forecast to lift a further 5 per cent in 2022 before falling 5 per cent the following year pushed lower by higher interest rates, stretched affordability and a tightening of macro-prudential policies.
‘‘Deteriorating affordability is likely to weigh on owner-occupier demand, and a tightening in macroprudential policy settings will restrain the supply of credit,’’ Westpac chief economist Bill Evans said.
‘‘We expect housing credit growth to exceed 7 per cent by the first half of 2022 triggering a likely policy intervention. The precise response will depend on the composition of lending over the next year.’’
Previous macroprudential tightening targeted investors, and new loan commitments to investors almost doubled between June 2020 and May 2021, according to the Australian Bureau of Statistics.
However, while the total value of investor commitments at $91.1 billion in May was close to highs seen in 2015, the percentage of overall loans at 25 per cent remains below the 45 per cent level hit during that period.
Regulatory market interventions could target higher loan-to-value ratios, higher household debt-to-income ratios or potentially the issuing of interest only loans, similar to caps last seen in 2017.
Or if gains are driven by a more general lift in credit growth, the regulator may instead place a limit on aggregate lending for investors (as in 2015), according to Westpac.
In the meantime, Brisbane and Hobart house prices will lift 18 per cent this year, followed by Melbourne (16 per cent), Adelaide (14 per cent) and Perth (12 per cent), weighing on affordability.
‘‘The upswing that emerged at the start of this year has continued to run ahead of expectations with markets carrying strong momentum into the second half,’’ Mr Evans said.
‘‘Prices nationally rose 12.2 per cent over the first six months, an extraordinary 25.6 per cent pace in annualised terms.’’
Westpac was the first major bank to tip rate rises ahead of the Reserve Bank’s current 2024 guidance, with Mr Evans forecasting the first increase above the current historically low 0.1 per cent in early-March 2023.
Most economists now expect the RBA to begin raising rates over 2023 and 2024 to a natural rate of about 1.25 per cent. Westpac estimates rates any higher would place ‘‘significant stress’’ on household finances.
House prices as a ratio of household disposable income nationally have risen from about 2.5:1 in 1991 to more than 5:1 in 2021, according to the RBA, while the household debt to income ratio has climbed from 0.7:1 to close to 2:1.
