House price growth to exceed 20pc in 2021: ANZ

ANZ has revised up its house price expectations for 2021 and now expects growth to exceed 20pc in capital cities, despite lockdowns.

The market has remained strong despite lockdowns.

Against the backdrop of Covid-19 lockdowns in Australia’s two largest housing markets, banking giant ANZ has raised its housing price forecast to growth of more than 20 per cent over the calendar year.

Concurrent outbreaks of the delta variant that have locked down NSW, ACT and Victoria have had little impact on property prices, according to ANZ’s latest housing note.

Since March, ANZ had been forecasting house price gains of between 15 and 20 per cent across the capital cities. But recent performance has been stronger than we expected, prompting the bank to readjust its average capital city housing price forecast to rises of just over 20 per cent through 2021 and 7 per cent in 2022.

ANZ’s senior economist Felicity Emmett said there is a risk that the forecast is still too low, but the impact of lockdowns is difficult to factor in.

“Prices have grown a bit stronger than expected in the six month period to July, so we are factoring that in,” Ms Emmett said. “But we are expecting prices to slow.

“There is still a risk that our forecast is too low if momentum continues at its current pace … (but) I think it is brave to go out now and say they will be much stronger.”

The property market remains tight as buyers compete for the low number of properties available, pushing prices higher.

Housing finance rose 83 per cent in the year to June, investors are returning to the market, and auction clearance rates remain in the mid-70s.

Because of the gains, housing affordability has deteriorated against all key metrics, including value-to-income loan ratios, serviceability and the number of years required to save a deposit.

With credit growth accelerating, Ms Emmett flagged banking regulator the Australian Prudential Regulation Authority (APRA) is likely to remain on alert. She believes there is the potential for macroprudential measures in the coming months to slow down price growth.

However, any intervention is unlikely until 2022 due to virus uncertainty and even then that will be light-handed.

Housing construction has rebounded sharply in the past 12 months but building approvals are now rapidly falling due to pandemic stimulus such as HomeBuilder being wound up. There is currently a large pipeline of activity which will underpin strong growth in housing construction through to the end of 2021 and the first half of 2022, made up mostly of work brought forward.