Boom amid the gloom: Even a 20 per cent jump in house prices might be too low

ANZ said its expectations of a 20 per cent rise in house prices this year was too low. It will be more and it has even pushed back the timing on when regulators will step in to cool the market.

Aug 25, 2021, updated Aug 25, 2021
House prices are beating expectations (Photo supplied)

House prices are beating expectations (Photo supplied)

The bank had been expecting 2021 to end with a rise of between 15 per cent and 20 per cent, but we have bumped it up a little, economists Felicity Emmett and Adelaide Timbrell said.

Recent performances in the capital cities had been better than expected. In July Brisbane and Sydney prices grew by 2.1 per cent, or an annualised rate of 25 per cent.

“We now forecast average capital city housing prices to rise just over 20 per cent in 2021,” they said.

“We expect, however, that price gains will moderate from the hectic pace of the first half of 2021, given the increased uncertainty around the outlook, slightly higher fixed mortgage rates, and the prospect of macroprudential measures.

“We’re expecting average price gains of 7 per cent in 2022.’’

For the full 2021 year Brisbane is expected to be right on average with a rise of 21 per cent with Canberra leading the way on 24 per cent.

“Credit growth is accelerating, and this is likely to keep the regulators on alert. We expect the Australian Prudential Regulation Authority (APRA) to step in with macroprudential controls, although heightened uncertainty around the impact of the third wave of COVID and associated shutdowns may delay implementation until 2022.”

Housing finance rose 83 per cent in the year to June, investors are returning to the market, auction clearance rates remain in the mid-70s and households continue to report expectations of significant price rises. 

Sales continue to outpace new listings, leaving stock levels very low compared with history

“Not surprisingly, housing affordability has deteriorated. Across all metrics and all states, buying or renting a home has become less affordable,” Emmett and Timbrell said.

“Affordability constraints are now biting, and these are likely to see first home buyer lending continue to drift lower.’’

Australian construction work done rose 0.8 per cent q/q in Q2 2021, well below our and market expectations.

On its own, this suggests some downside risk to forecasts for next week’s Q2 GDP report.

The most surprising result in Q2 was the stalling in residential construction activity (-0.1% q/q), despite the surge in housing approvals since last year.

Work done plateaued on both houses and other dwellings


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