3 reasons why the real estate market will fall, according to Westpac
The housing market in Australia is already showing signs of , according to .
And it will only continue from here, the big bank has warned, after property prices fall 10% in 2023.
But what is causing the decline? Westpac outlined three main reasons in its Monthly Housing Report.
Here is the breakdown.
Westpac said a major concern at the moment was the growing risk that Australians might not be able to pay off their mortgages in the event of a rise.
“For housing, few risks are as significant as those related to interest rates, particularly when a more sustained and/or aggressive policy response from the central bank may be required,” the report said.
“Some of the most difficult times for Australian property markets – the early 1990s and 2007-08 to name just two – were when the Reserve Bank of Australia (RBA) was battling an inflation problem.”
RBA Governor Philip Lowe has been pretty clear that the bank is not expected to raise rates in 2022 and may begin a gradual increase from 2023 to 2024.
“The bottom line is that while inflation has risen, it is not seen as something likely to force the bank into a more aggressive tightening schedule, with official rates expected to remain unchanged in the near term,” the report said. Westpac report.
So, while rates are unlikely to rise next year, the impact of rising inflation is putting pressure on Australia’s big banks and households. Thus, the purchase of houses is not at the top of the priority list.
2. Potential oversupply
The balance between the number of people who want to buy a house and the number of houses available for purchase will have an impact on prices.
If there are 10 people wanting to buy a house but only five houses available, the competition will drive up the price.
But Westpac said we could face the opposite problem – many properties, and they.
“Currently, the potential risk of oversupply stems from the combination of high levels of new construction and a prolonged period of slow population growth due to border closures,” the report said.
The report said Westpac expected the number of foreign visitors entering the country to come in slowly, while approvals for the construction of new apartments and houses had increased.
Westpac said the combination of the two could lead to an oversupply problem. So, without strong competition from other buyers, prices will not be pushed higher.
Investors’ appetite to prolong the current housing boom will also play an important role in the direction of prices.
“The question here is less about whether markets could be knocked down by a sudden drop in investor activity and more about the potential for a sharp rise to extend the current cycle,” the report said.
“Generally speaking, where investors go, housing markets generally follow. The recent revival – led by owner-occupiers – is a rare counterexample with owner-occupiers in the lead.
The report says that despite this, affordability pressures were beginning to weigh on demand from homeowners, which had led to an uptick in investor activity.
“Investors are expected to be a key ‘swinger’ for housing from 2022, presenting short-term upside potential if they return en masse, but also the potential for a more volatile cycle if that leads to a tougher response from policymakers,” the report said.