The stronger-than-expected rebound in house prices has caused economists across the country to reassess forecasts as the nation’s two largest cities lead “phenomenal” growth in housing demand.
The Commonwealth Bank latest dwelling price outlook doubles its previous forecast of a 3 per cent lift in 2020 to 6.1 per cent over Australia’s eight capital cities.
CBA senior economist Gareth Aird said that the bank’s original price targets have been achieved much sooner than expected.
“Auction clearance rates are high, the flow of credit has picked up markedly and both house price expectations and home buyer intentions have spiked,” Aird said.
Clearance rates, a good forward-looking indicator on house prices, recorded the second busiest week of the year and are now tracking well above a year ago. More than 2500 homes were taken to auction over the weekend, with a clearance rate of 74.1 per cent.
“Over the past four months the key indicators of momentum that we monitor have all strengthened,” Aird said.
“Our base case for property prices in Sydney and Melbourne has them rising by 7 per cent and 8 per cent respectively over 2020.
“For Brisbane and Perth, we see prices rising more modestly.
“Nationally, we think prices will rise by 6 per cent.”
|Year||% annual change to October 2020 (forecast)||% annual change to Dec 2019 (forecast)||% annual change to Oct 2019 (actual)|
|8 Capital Cities||6.1||2.1||-2.4|
The continued decline in housing construction—with falling approvals pointing to further declines in activity ahead—will drag on jobs and growth in the near term.
While strong population growth rate of 1.6 per cent over the third quarter will trigger a “larger price response” in house prices.
Aird said that the decline in residential construction is taking place at a time when the excess of supply is small.
“This means it won’t be long until the excess supply has been eroded,” Aird said.
“Our estimates point to an undersupply of housing from late-2020.
“This should put downward pressure on vacancy rates and upward pressure on rents and dwelling prices.”
The latest RBA minutes published on Tuesday indicate that the central bank considers a larger-than-expected contraction in housing construction a near-term downside risk to the economy.