Westpac's Bill Evans predicts stop-start housing recovery

Westpac chief Bill Evans anticipates a continuing stop-start recovery for the housing market.

He says house prices have only just returned their 2010 peaks as income levels increased 10% and says further recovery will be uneven.

"We expect Australia's housing recovery to continue to be a 'stop-start' and uneven one," Evans says in a weekly update.

“There are headwinds that are yet to fully impact with some markets facing increases in new dwelling supply (VIC, WA) and the mining downturn to play through fully to housing (WA, QLD).” 

He says the housing market has experienced a diverse performance best illustrated by changes in six month annualised price increases compared to three months ago - Sydney prices are up by 14.7% compared to 8.2% in July, Melbourne is up 4.5% v 5.1% in July; Perth is up 6.8% v 10.5%; Brisbane is up 1.7% v 1.2%; and Adelaide is up 0.2% v 2.4%.

Westpac expects households will be more restrained with their balance sheets with a reluctance to increase debt.

And they will be more cautious about job security which would impact first home buyers and upgraders.

On Friday the RBA will release its monetary statement policy which will give an indication of its economic forecast.

Evans says if the RBA maintains its forecast of 2.5% GDP growth for the year to June 2014 it will effectively be confirming it expects growth in the first half of 2014 to be stuck at a below trend annual pace of 2.5%.

And if the RBA maintains its expectations of 2.5% to 3.5% growth for the year to December 2014 it will effectively be forecasting a lift in growth pace in the second half of 2014 to a 3.6% annualised pace.

“That is a big call – the growth pace lifting from a 2.5% annualised pace in the first half of 2014 to a 3.6% annualised pace in the second half,” Evans says.

“Our forecast is for a more reasonable 3% annualised pace in the second half of next year. Nevertheless we expect the Bank will maintain a somewhat upbeat outlook.”

Westpac expects the RBA to maintain its view that the economy is growing at sub-trend pace and will continue to do so to mid-2014.

“We expect that over the course of the next few months it will have to temper that bullish view on the second half of 2014 and see the need for more policy support to arrest the current sub trend growth momentum,” Evans says.

Westpac is more than confident the RBA will keep rates unchanged.