Westpac economists do not expect house prices to start falling until late 2022.
The bank’s chief economist, Michael Gordon, expected house price growth to “cool” significantly over the coming 12 months as a result of tax changes designed to make property investing less profitable.
But house prices would not start declining until after the Reserve Bank began lifting the Official Cash Rate (OCR), which it cut to stimulate the economy in the face of the Covid-19 pandemic.
“Previously we expected OCR hikes to be delayed until early 2024,” Gordon said.
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“Our concern was that rate hikes as early as next year would lead to unacceptably low inflation and employment outcomes for the Reserve Bank,” Gordon said.
But he was now more confident the economy was strong enough to merit the removal of the emergency moves to stimulate it last year.
Westpac now expects house prices to dip in late 2022.
“The economy appears to have endured the ‘touristless summer’ better than we expected, and has come out of that phase with considerable momentum,” he said.
“The 1.6 per cent rise in March quarter GDP was much higher than forecast, and while we have questions about how much of this surprise will be sustained, we think at least some of it was genuine,” he said.
Business activity and retail spending had also been positive for the June quarter, he said.
Unemployment continued to drop, and hit 4.7 per cent in the first three months of the year, and Westpac expected that to fall to around 4 per cent by the middle of next year.
Already the home loan market was beginning to send borrowers signals that mortgage rates will rise.
“We expect that floating rates, and shorter fixed-term rates, will be stable over the coming months,” said Gordon.
“Longer-term interest rates are now rising in response to the improved economic outlook,” he said.
He said given the bank’s forecasts, longer term fixed rates of three to five years no longer offered good value, compared to borrowers taking a short-term rate now and re-fixing later at a higher rate.
Originally Appeared Here