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A new report released from ANZ Bank predicts house prices at the national level will rise to a strong 17% through 2021, before slowing to 6% in 2022.
What a turn around from all the pessimistic forecasts all the banks made in the middle of last year.
ANZ senior economist Felicity Emmett said she expected the Australian Prudential Regulation Authority (APRA) would then introduce macroprudential measures to slow house price growth into 2022.
ANZ reported that property prices rose a rapid 9% in the month of February, accelerating sharply from the 0.5– 0.6% gains over the previous three months.
Strength was evident across all capital cities, with Hobart (+2.4%) and Sydney (+2.3%) the strongest and Adelaide (+0.8%) and Darwin (+0.9%) making the smallest gains.
Daily house price data suggest the gains in March will be even stronger.
Prices are now above levels seen in February 2020 (before the real onset of the pandemic) in all capital cities bar Melbourne where prices are down 1.5% y/y.
Owner-occupiers are driving the market with new housing loans up 80% since the low in May.
ANZ believes that buyers are taking advantage of historically low-interest rates, particularly fixed rates, as well as various government support programs.
First home buyers are also benefitting from government support in the form of first homeowner grants and reduced stamp duty.
Investor activity is also growing strongly (+62% from the low in May), but given earlier weakness, its share of total new finance remains low at 16% compared to an average of 25% over the previous decade.
The strength in sentiment is putting upward pressure on prices, with low stock levels adding to the fear of missing out (FOMO) sentiment emerging in the
ANZ now expects price gains of around 17% across the capital cities (up from their previous forecast of 9%) in 2021.
With interest rates the primary driver of price gains, ANZ sees strength across all capital cities.
While most markets are experiencing a property boom, house price performance has been varied.
But the more expensive end of the market is outperforming as usually happens at this stage of a new property cycle.
The first half of 2021 is likely to be stronger than the second half.
By June ANZ expect prices to be rising at a more moderate pace given the end of government programs like JobKeeper and HomeBuilder, and a lift in fixed mortgage rates.
By year-end though, ANZ expects the regulators will step in with macro-prudential controls to address the overheating market, with the exact measures likely to be dependent on how the market develops over the next six months or so.
Low mortgage rates are a key driver of the strength in the market, with fixed mortgage rates falling at more than double the rate of variable mortgages over the past year or so.
Homebuyers are taking advantage of these lower rates, flocking into fixed rates
The average cost of new mortgages is still falling.
And with two of the big four Australian banks now offering two-year fixed-rate home loans below 2%, competition is pushing rates even lower.
ANZ believe we are likely to be close to the bottom in fixed With the Term Funding Facility (TFF) ending in June, and the likelihood that the RBA chooses not to roll the Yield Curve Control (YCC) target into the Nov- 24 ACGB, fixed mortgage rates are likely to move higher in the second half of 2021.
Further out, there will be more significant increases in interest costs.
Over the past six months, more than 30% of new loans have been at fixed rates.
While ANZ doesn’t have data on the tenor of these loans, it’s safe to assume that a large proportion will begin rolling off from May 2023.
By then, fixed rates are likely to be significantly higher and variable rates will also likely be higher given higher funding costs for the banks.
So, even without a lift in the cash rate, the housing market will face higher rates as early as the second half of 2021, with a more significant rise in interest rates in 2023
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