Yahoo Finance 3 reasons the property market will drop, according to Westpac
The housing market in Australia is already showing signs of slowing down, according to Westpac.
And it's only going to continue from here, the big bank has warned, after the Commonwealth Bank predicted property prices would fall by 10 per cent in 2023.
But what is driving the decline? Westpac outlined three main reasons in its monthly housing report.
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Here’s the breakdown.
1. Inflation
Westpac said one of the main concerns at the moment was inflation and the growing risk that Aussies would not be able to repay their mortgages if interest rates increased.
“For housing, few risks loom as large as those around interest rates, particularly when there is the potential for an inflation challenge requiring a more sustained and/or forceful central bank policy response,” the report said.
“Some of the most difficult periods for Australian housing markets – the early 1990s and 2007-08 to name two – have been when the Reserve Bank of Australia (RBA) was fighting an inflation problem.”
RBA governor Philip Lowe has been quite clear that the bank is not likely to raise rates in 2022, and may begin a gradual lift in 2023 to 2024.
“The bottom line is that while inflation has lifted, it is not seen as something that is likely to force the bank into a more aggressive tightening schedule, with official rates set to remain on hold near term,” the Westpac report said.
So, while rates are not likely to rise next year, the impact of increasing inflation is putting pressure on the big banks and Aussie households. So snapping up homes is not at the top of the priority list.
2. Potential oversupply
The balance between how many people want to buy a home and how many homes are available to purchase will have an impact on prices.
If there are 10 people who want to buy a home but only five houses available, the competition will force prices higher.
But Westpac said we may be facing the opposite issue - lots of properties, and not enough people willing to buy them.
“Currently, the potential risk around oversupply comes from the combination of high levels of new building and an extended period of slow population growth due to closed borders,” the report said.
The report said Westpac was anticipating the amount of overseas visitors coming into the country would come through slowly, while approvals to build new apartments and homes had surged.
Westpac said the combination of the two may lead to an oversupply issue. So, without strong competition from other buyers, prices won’t be pushed higher.
3. Investors
The appetite of investors to drag out the current property boom will also play a significant role in the direction of prices.
“The question here is less about whether markets might be knocked down by a sudden decline in investor activity and more about the potential for a strong lift to extend the current cycle,” the report said.
“Generally speaking, where investors go, housing markets usually follow. The recent revival - led by owner-occupiers - is a rare counter-example with owner-occupiers leading the way.”
The report said that despite this, affordability pressures were starting to weigh on owner-occupier demand, which had led to a small lift in investor activity.
“Investors look set to be a key ‘swing factor’ for housing from 2022 on, presenting upside potential near term if they return en masse, but also the potential for a more volatile cycle if this draws a more stringent response from policymakers,” the report said.
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