Again? Where does it end?
“House prices are running hotter than we thought they would,” says pretty much every economist in the country.
I found out last week that CBA have revised up their house price forecasts. Again.
I don’t remember how many times they’ve done that now. Two or three times?
But the point is that the housing market has continued to impress, has shaken off the most epic rate hike progrom in history, while barely breaking stride, and prices continue to head north.
Price gains recorded so far have already blown the full-year forecasts out the water, so CBA is revising them upwards:
In May; we forecast national home prices to rise by 3% in 2023 and a further 5% in 2024.
The pace of gains since then have exceeded our expectations. The lack of new listings on the market, tight rental markets and strong population growth have pushed up prices more than expected.
As a result, our May forecast has already been met this year. Gains in calendar 2023 to August sit at 4.7%.
Given the current momentum in the market we revised up our estimate for home prices gains in 2023 to 7% last week.
We still expect a 5% gain in 2024. This increase would take home prices 2.3% above the last peak reached in April 2022, before a 10% peak to trough fall occurred as the RBA began to lift interest rates.
Looking around the country, they expect Sydney, Brisbane and Perth to be leading the way, with Adelaide and Melbourne setting a more modest pace:
As the CBA economists are humble enough to note, they were caught on the hop by the market’s strength.
Its really all about the fundamentals of supply and demand. On the supply side, there’s been a real absence of new stock on the market, with flows much lower than expected. And on the demand side, immigration is running much hotter than anticipated too.
Much of the driver of home prices from here will be driven by the level of supply.
As we noted above, new listings and total advertised stock remain below average levels.
We could see a lift in supply over the normal spring selling season which could slow the pace of monthly gains. However there is considerable uncertainty around this.
A lift in listings requires people to sell, normally this would be either through upgraders, or investors looking at moving on. Challenges around refinancing given the level of interest rates could make this harder also.
At the same time, a lack of supply of housing for both renting and owning is contributing to very low vacancy rates at a time when population growth is high.
I mean, wow. Look at that disconnect. And that’s not correcting anytime soon.
They might need to revise their forecasts up even more.