Heightened uncertainty around third wave of COVID, but prices tipped to rise: ANZ

ANZ has updated its property price forecasts in response to the market’s resilience in the face of extended lockdowns. "We’ve bumped up our 2021 house price forecasts," Felicity Emmett, its senior economist advised, joining the other major banks in predicting big jumps in house prices by the end of the year. "Since March we’ve been forecasting house price gains of between 15-20% across the capital cities, but recent performance has been stronger than we expected. "We now forecast average capital city housing prices to rise just over 20% in 2021 and 7% in 2022." "The rise in Delta COVID cases and extended lockdowns don’t seem to have impacted the market significantly, but they have increased the uncertainty about the outlook," Emmett said. The report advised housing affordability has deteriorated across all metrics and all states, as buying or renting a home had become less affordable. Housing construction activity is rebounding sharply, and there is still a substantial amount of work in the pipeline, but the impact of the federal HomeBuilder program is now unwinding, and approvals are falling rapidly, it noted. "Houses have been the main beneficiary of the strength. "Very low interest rates and continued fiscal support for home buyers should underpin housing demand going forward, although slow population growth will be a headwind. • While building approvals have turned down, there is still a significant amount of construction activity in the pipeline. "Reduced capacity on building sites in NSW and Victoria given social distancing requirements may push some activity from 2021 into 2022. "Once that pipeline dries up, construction activity looks set to decline, although ongoing low mortgage rates and a rise in apartment approvals should cushion the fall," it suggested. Housing construction activity is rebounding sharply, and there is still a substantial amount of work in the pipeline, but the impact of the federal HomeBuilder program is now unwinding, and approvals are falling rapidly. A large pipeline of activity will underpin strong growth in housing construction through to mid-2022, before activity brought forward by government incentives dries up. Credit growth is accelerating, and this is likely to keep the regulators on alert. We expect the Australian Prudential Regulation Authority (APRA) to step in with macroprudential controls, although heightened uncertainty around the impact of the third wave of COVID and associated shutdowns may delay implementation until 2022.