Sydney house prices to gain 1pc this year: Westpac (2024)

Westpac also slashed its prediction of nationwide peak-to-trough price falls to 10 per cent from its earlier forecast of 16 per cent.

Rebound in auction clearance rates

“Australia’s housing correction is largely over,” wrote Bill Evans, Westpac chief economist and Matthew Hassan, senior economist, citing migration influx, increased cost of new builds and tight supply as contributing factors.

The impact of those factors flowed through to price increases in Sydney and stabilisation across the combined capital cities.

Other housing indicators have also firmed, including auction clearance rates that rebounded to long-term averages in April, housing turnover that has stabilised and a slower pace of decline in housing finance approvals.

“This shift has come despite further official rate rises in February and March,” the economists wrote.

“Housing recoveries in the past have only tended to flow through to prices once the RBA is actively cutting rates or is very clearly poised to do so. Price gains also tend to follow a sustained lift in turnover, not vice-versa.”

Ahead of the bank’s revised forecast, Sydney prices had gained 2.9 per cent since bottoming out on February 7. Prices also lifted 1.01 per cent since the start of the month, CoreLogic’s daily home value index shows.

“The ‘mini-rally’ in prices may still be quite fragile. But the momentum shift from negative to stable (possibly positive) is still important as it plays into expectations,” the bank’s economists wrote.

The Westpac Melbourne Institute Consumer House Price Expectations Index is now 43 per cent above its November low and marginally above long-run average reads.

“This will further ‘anchor’ prices, reinforcing the stabilisation,” they wrote. “Given the ‘anchoring’ expectations, it would take quite a substantial shock to trigger another run of material price declines.”

That shock will come from further interest rate rises and a lift in stock on the market according to the bank.

“Certainly, a May rate hike would challenge expectations near term, but this is comfortably within the range of current expectations for most consumers,” the economists wrote. The RBA meets on May 2, having lifted its key overnight rate 10 times to 3.6 per cent since last May.

May rate increase?

“It is likely to require, at the very least, a sequence of rate hikes to dislodge expectations from here.”

While the bank is no longer expecting prices to fall sharply this year, it has maintained its view of lacklustre growth this year.

“Another major slide seems unlikely, although gains will be hard to sustain given interest rates and wider economic headwinds,” the economists wrote. “Markets are still likely to remain on edge near term as interest rates remain high and the full impact of the RBA’s rapid tightening cycle flows through.

“A May rate hike is likely to ‘check’ the improvement in housing-related sentiment near term. Some lift in ‘on-market’ supply is also likely to test the depth of demand.”

An unexpected breakout in inflation could fuel further rate increases, said Louis Christopher, SQM Research’s managing director who had predicted a rise in prices this year.

“There are still some uncertainties for 2023 and interest rates could still go up in the coming months, but I take the view that the probabilities have significantly increased now that we have reached the peak in the cash rate for this year,” he said.

“This means our house price forecast of a 5 per cent to 9 per cent rise in Sydney could easily be topped.”

Shane Oliver, AMP Capital chief economist said recent RBA commentary points to further interest rate rises, however, the risks were skewed for prices to defy his earlier forecast.

“We haven’t revised our forecast yet, but I suspect I might have to,” he said.

“The unusual behaviour of the market makes it hard to read,” Mr Oliver said. “Normally, when interest rates are rising and high compared to what they used to be, that leads to weaker economic growth, and less demand for housing and yet demand has surged due to resurgence of immigration and low stock.

“Prices have risen, ahead of rate cuts. We haven’t seen this occur in the past. All the housing recoveries from those previous slumps were preceded by lower interest rates, so this is highly unusual.”