House prices on the road to recovery, says ANZ

House prices could stay flat for the remainder of the year and start rising again next year as part of a shallower than expected housing cycle, according to ANZ economists.

House prices could stay flat for the remainder of the year and start rising again next year as part of a shallower than expected housing cycle, according to ANZ economists.

The big four bank’s senior economists Felicity Emmett and Adelaide Timbrell are the latest to upgrade housing forecasts on the back of the tight supply of new listings and demand spurred by higher than expected immigration.

The pair cited improved auction clearance rates, very strong population growth and the recent lift in prices as they upgraded their housing price forecast.

“We now expect capital city housing prices to end this year unchanged before a modest rise in 2024,” they said. After just a 9 per cent decline in capital city housing prices over the past year, the ANZ pair said that the recent upturn had come as a surprise.

They had previously thought the sharp rise in interest rates would continue to weigh on housing prices through most of 2023, with prices declining 10 per cent through the year. But they now think most of the weakness is behind the market.

They said low levels of supply and stronger-than-expected demand had trumped the impact of higher mortgage rates over recent months.

New listings are stuck 20 per cent below the five-year average and total listings are at their lowest since 2010. The ANZ pair noted that immigration was also surging after the lull through 2020-21 when international borders were closed.

They said that even before the rush of new arrivals, the pandemic had already driven housing demand sharply higher with the average number of people per household falling to a record low.

They said auction clearance rates running in the mid-60s was consistent with annual housing price gains in the order of 10 per cent. They noted that the Reserve Bank’s cash rate hikes had not fully flowed through into mortgage rates.

Intense competition among the banks has meant that average mortgage rates on new loans have risen nearly 50 points less than the cash rate. The central bank’s move to pause the rate hike cycle has also boosted the market.

“We did expect that strong household income growth and large savings buffers would provide a cushion for the fall in house prices,” they said.

The ANZ pair cautioned that any recovery would be slow and modest.

Last week, HSBC upped its forecasts to muted housing price growth and lifted its expectations from a year-on-year fall of 6-8 per cent over 2023 to a fall of 1-3 per cent.

HSBC chief economist, Australia and NZ, Paul Bloxham, said that the reopened international border had driven a stronger-than-expected pick-up in inward migration.

This has boosted housing demand and is supporting a levelling out in housing prices earlier than previously forecast, and could mean some predictions of deeper falls do not come to pass.

“However, we do not expect a big bounce in prices, given the fixed rate mortgage resets and expected economic slowdown,” Mr Bloxham added.

Influential Westpac chief economist Bill Evans this week also declared the housing market price slump won’t be as bad as initially feared.

But he has warned the housing market will remain on edge in the near term with prices expected to hold flat this year with a sustained recovery only coming in 2024.

Westpac had previously flagged a further 7 per cent fall in prices this year.

“Australia’s housing correction is largely over, several factors combining to produce a stabilisation,” Mr Evans and senior economist Matthew Hassan said. “Prices now expected to lift 5 per cent in 2024, revised up from +2 per cent.”