ANZ turns upbeat on housing market recovery in 2021

The bank has joined the forecasters with a less gloomy take on the impact of the coronavirus crisis.

The bank has joined the forecasters with a less gloomy take on the impact of the coronavirus crisis.

The bounce-back of the housing market driven by owner-occupiers has prompted ANZ to upgrade its outlook for residential property and it is tipping healthy price rises over next year.

The bank’s economist Felicity Emmett and Adelaide Timbrell are predicting a strong 2021 for Australian housing as the sector turns a corner.

“We now expect house prices at the national level to rise modestly over the balance of this year. Next year, we expect price gains of around 9 per cent across the capital cities,” the bank economists said.

After falling since April, national house prices were flat in October and are set to rise over coming months, the pair said.

“The strength is largely being driven by owner-occupiers, with low interest rates appealing to buyers in secure employment,” they wrote, saying this was spreading to buyers who are upgrading as well as first home buyers.

ANZ has dumped an earlier view espoused during the depths of the pandemic that house prices would fall heavily.

“Our view that house prices would decline around 10 per cent, peak to trough, has proven too pessimistic: low rates have trumped factors like elevated unemployment and low population growth,” the economists said.

They cited government income support and the deferral of home loan repayments as backing the market.

“The RBA’s recent rate cut, the further decline in fixed mortgage rates and the prospect of low rates for some years will all add to the momentum currently in the market,” the ANZ pair said.

Drawing on recent data they noted that many deferred home loans had now moved back to regular payments, and some will move on to more medium term forbearance measures.

The coronavirus crisis has caused some dislocation and ANZ said there will be some borrowers who find themselves with too much debt.

But they said accommodative lender measures, including extended bans on evictions, will mitigate the downside risk such sales pose to overall prices.

They argued that the turnaround in sentiment was also evident in leading indicators of housing construction, despite large projects being under pressure.

Building approvals have lifted and the ANZ pair said the federal government’s $25,0000 HomeBuilder grant was “clearly hitting the mark”, with house and renovation approvals rising solidly.

While apartment approvals are not getting as much benefit from HomeBuilder, they said low rates look to be helping that sector, with approvals up sharply in recent months.

“We expect construction activity to decline a little further through 2020, before turning higher in early 2021,” they said.

Financial stress had been brought under control by government stimulus, superannuation withdrawals and mortgage repayment deferrals, the bank said.

“Lender forbearance is expected to limit the incidence of household financial stress and any rise in arrears rates is expected to be modest,” they said.

Auction clearance rates are already rising. Research house CoreLogic said that the preliminary auction clearance rate hit 75.1 per cent across the combined capital cities last week as 1,739 homes were taken to auction in capital cities this week.

Last week, a preliminary clearance rate of 73.2 per cent was recorded across the capitals, revising down to 69 per cent once final tallies were collected.

By early November the resilience of the housing market was on display, with listings coming back in the last two months as prices hold in most major capital cities.

The lift in listings, reported by research house SQM Research, was driven by the gateway markets of Sydney and Melbourne, as the latter comes out of lockdown.

The surge sets the scene for a late spring selling season that could flow over into December and spur the housing market early next year, said SQM.