Westpac’s chief economist Bill Evans predicted that house prices would fall by ten per cent nationally, between April this year and June 2021.
Last week he revised that figure to five per cent.
Now Westpac’s economics team predicts that house prices will bottom out in June 2021, after a further 2.3 per cent decline, before bouncing 15 per cent. They credit low mortgage rates and a less severe recession than feared, saying this will stabilise the market before a solid recovery.
“This recovery will be supported by sustained low rates, which are likely to be even lower than current levels; ongoing support from regulators; substantially improved affordability; sustained fiscal support from both federal and state governments; and a strengthening economic recovery (particularly once a vaccine becomes available, which we expect in 2021),” Mr Evans said.
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The economists have mapped out a four-stage housing cycle that they believe will lead to this surge.
The first stage has “now largely passed”, and saw the decline due to COVID shock.
Stage 2 will be the upcoming December and March quarter, in which prices will stabilise, with a possibility of “modest increases.” During this stage, fixed rate loans “may well go lower.”
Stage 3 features “some limited resumption of downward pressure on prices” due to distressed sales forced by mortgage repayment issues.
Then prices will lift in Stage 4, “once this selling pressure has worked through the system.”
Mr Evans notes that even a 15 per cent price rise “may also prove too cautious” an estimation.
“Readers might see that estimate as optimistic but there are some risks to the upside,” he said.
“Including the 5 per cent fall we expect out to mid–2021, this would see a cumulative increase in prices of 10 per cent from pre-COVID highs over a three year period where interest rates and credit supply are likely to be at maximum levels of stimulus.
“Those upside risks are based on the psychology of markets. If participants are convinced about our views on the likely favourable conditions in the fourth stage of the cycle they may choose to boost demand earlier than we currently expect providing an even more robust defence against the headwinds we envisage in stages two and three.”
