After lifting for the fifth month in a row during July, ANZ has now predicted that housing prices in Australia will increase by between 5 and 6 per cent this year.
In its latest Australian housing update, ANZ noted that prices have moved higher since February, even though the cash rate now sits at 4.1 per cent after 400 basis points of monetary tightening by the Reserve Bank of Australia (RBA).
“The impact of housing shortages and tight rental vacancies are currently outweighing the impacts of cash rate increases,” the bank suggested.
According to ANZ, key forward indicators such as housing finance approvals and auction clearance rates suggest that further increases are to be expected in the near term.
Growth will then slow to approximately 3 per cent in 2024, the bank predicted, due to anticipated rising unemployment, the lagged impact of past rate hikes and slower population growth.
After this, price growth is then tipped to reaccelerate to between 4 and 5 per cent in 2025, supported by ANZ’s expectations for a “modest cut” in interest rates.
At present, the bank’s central case is for an “extended pause” by the RBA moving forward before easing towards the end of 2024.
According to ANZ, strong refinancing activity and competition have limited the pass-through to average new mortgage rates, which it said have risen by less than the cash rate.
“Fixed rates have sheltered some households from the financial impacts of higher rates. The current monthly rate of expiring fixed loans is near its peak. This is squeezing some household cashflows and may be causing falling excess mortgage repayments,” it said.
“The share of income going to housing payments is expected to reach a record high of around 10 per cent. This is undermining confidence of indebted households, though we expect arrears rates to remain low.”
The bank’s economists had previously predicted that property prices would remain flat this year due to the impacts of higher interest rates and broader economic headwinds.
However, they noted that ongoing momentum in the property market and an improved near-term outlook for interest rates and growth had led them to revise up their forecasts.
“Australia’s housing market has continued to outperform expectations, particularly with respect to prices,” said Westpac senior economist Matthew Hassan.
