Westpac now expects Australian house prices to rise in 2024 due to high levels of immigration.
The Reserve Bank of Australia’s 10 rate hikes since May 2022 have caused property values to plummet, with the median house price in Sydney falling 13.3 per cent over the past year to a still prohibitively expensive $1.23 million .
But Westpac economists Matthew Hassan and Bill Evans expect a five percent recovery in Sydney and Melbourne by 2024, with Australia’s two largest cities likely to absorb most of the immigration flow.
“There are clear links between population growth and housing demand, both direct (through new buyers) and indirect (through the impact on rental housing availability and the broader physical balance between supply and demand),” they said.
The Ministry of Finance expects 350,000 new arrivals in 2022-23, followed by another 300,000 in 2023-24, amounting to 650,000 new migrants over two financial years.
Westpac now expects Australian house prices to rise in 2024 due to high immigration (pictured is an auction in Sydney)
This would be a new record, surpassing the high 15-year pace of 303,700 in the year to September 2022, including the permanent arrival of skilled, family reunification and humanitarian migrants, along with international students, classified as long-term arrivals.
The influx pushed the national population above 26.1 million, data from the Australian Bureau of Statistics showed.
Westpac noted that about a third of migrants eventually bought a home “usually at least six months after arrival.”
“Immediate demand from new migrants may impact some market segments, but usually takes time to emerge and is usually not large enough to shift the broader market,” it said.
But Westpac economists Matthew Hassan and Bill Evans expect a five percent recovery in Sydney (light rail queue, pictured) and Melbourne in 2024, with Australia’s two largest cities likely to absorb most of the immigration flow
Sydney’s median house price was $1,221,367 at the end of 2022, and Westpac expects prices to rise by one percent in 2023, leading to levels as high as $1,233,581, based on CoreLogic data.
A five percent increase in 2024 would bring prices to $1,295,260.
The median house price in Melbourne was $905,894 at the end of last year and Westpac’s forecast of a one percent drop would go back to $896,835.
But a predicted five percent increase in 2024 would push prices to $941,677.
Brisbane was expected to fall by one percent in 2023, pushing prices back to $778,336 from $786,198.
A six percent increase in 2024 would push prices to $825,036.
Perth was expected to hold steady at $586,721 in 2023.
Property values in Australia’s largest cities are expected to recover in 2024 as strong population growth supports a property recovery
An expected eight percent increase would bring the median home price to $653,659.
Inflation data for the March quarter, to be released on Wednesday, will provide clues as to whether the RBA will raise rates again in May, following the pause in April.
Westpac tips another quarter of a percentage point on May 2, which would push the cash rate to an 11-year high of 3.85 percent, up from 3.6 percent.
The consumer price index hit a 32-year high of 7.8 percent year-to-December, but in February the less comprehensive monthly reading showed it falling to 6.8 percent — a level still above the 2-to-2 target. 3 percent of the Reserve Bank.
Westpac expects headline inflation to be up 7 percent in March, including housing costs.
The bank said the 10 rate hikes so far are likely to weigh only minimally on the housing market in 2023, with unemployment in March at a 48-year low of 3.5 percent.
The large rise in interest rates over the past year will also lead to a significant increase in stress in the mortgage belt, pushing some borrowers into “bump sell” situations, although this is not expected to be a material factor for broader markets, partly because the labor market is expected to remain supportive,” it said.