Yahoo Finance House prices to rise up to $160k in two years: CBA
Australia’s house prices will surge 16 per cent within two years as the country approaches a “housing boom”, a Commonwealth Bank economist has said.
House prices will rise 9 per cent in 2021 and 7 per cent in 2022, Commonwealth Bank’s head of Australian economics Gareth Aird said in a note to clients this week.
“The negative impact that COVID-19 had on Australian property prices turned out to be much more muted than almost any forecaster expected, us included,” Aird wrote.
“We were earlier than most, however, to recognise this and revised our call in September 2020 to look for a smaller peak-to-trough fall and a decent lift in prices over 2021.”
In Sydney and Melbourne, home values will grow by at least 12 per cent in the next two years. That would mean Australia’s median price would hit around $1.2 million, and Melbourne’s would jump to $920,000, an increase of $110,000 in Melbourne and $160,000 in Sydney.
However, those increases pale in comparison to Perth, where values are expected to rise 17.7 per cent ($99,000), Brisbane’s 16.6 per cent ($102,000), and Canberra’s 15.5 per cent ($132,000).
In Adelaide, the economist predicts a 14.5 per cent increase ($86,000), a 15 per cent increase ($87,000) in Hobart and an 18 per cent jump ($99,000) in Darwin.
Across the combined capital cities, that's an increase of 14.4 per cent.
“The Australian housing market is on the cusp of a boom. The boom is being driven by record low mortgage rates coupled with a V-shaped recovery in the labour market,” Aird said.
These predictions assume the Reserve Bank of Australia’s official cash rate will remain at its record low 0.10 per cent until 2024. This is a prediction supported by the RBA, which has flagged it won’t change interest rates any time soon.
And as interest rates remain below rental property returns, Aird believes house prices will continue to grow.
However, this boom could come undone if Australia were to suffer another significant COVID outbreak, triggering lockdowns. A faster-than-expected increase to interest rates would also derail the forecast, as would the re-introduction of measures designed to put the brakes on lending.
“If new lending accelerated too quickly, particularly to investors, there is a risk that the Australian Prudential Regulatory Authority (APRA) could reintroduce macro-prudential measures to slow things as they did in 2017,” Aird said.
But these risks are low, with the economist noting house price growth could even outstrip these expectations.
“History shows that prices can rise very quickly when the housing market is on a roll. Indeed it may turn out to be the case that the growth profile for price outcomes over the next two years ends up more front loaded than our current projections."
Aird’s predictions follow similar forecasts from NAB in recent weeks.
Economists at that bank have said that as home loan deferrals fall from 11.3 per cent as of May 2020 to 2.4 per cent in December, strength is returning to the housing market.
And, they added, the September mortgage deferral cliff wasn’t as negative as had been feared. The bank had previously held a “worst-case scenario” in which prices would fall 32 per cent.
The latest CoreLogic auction data found that 86.1 per cent of properties that went to auction last weekend sold, a 2.3 per cent increase on the previous week.
“Such strong auction results signal further upwards pressure on housing prices amidst extremely tight advertised supply levels and above average buyer demand,” CoreLogic said.
The housing market jumped 0.9 per cent in January 2021, taking the median home value to $583,157.
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