House prices to rise 5–6 per cent in 2023: ANZ

House prices could rise by up to 6 per cent in 2023 while the share of income going to mortgage repayments could reach a record high of around 10 per cent, the major bank has predicted.

In its August 2023 Australian housing update, ANZ’s senior economist Adelaide Timbrell said house prices will rise by 5 to 6 per cent through 2023.

She said despite increases in the cash rate by the Reserve Bank of Australia (RBA) this year to 4.1 per cent, the impact of housing shortages and tight rental vacancies are currently outweighing the impacts of cash rate hikes.

“Forward indicators including housing finance approvals and auction clearance rates suggest that further housing price increases in the near term,” she said in the report.

In 2024, Ms Timbrell said, the major bank expects growth to slow to around 3 per cent, “reflecting rising unemployment and the lagged impact of past rate hikes as well as slower population growth”.

“We expect housing prices to reaccelerate to around 4 to 5 per cent in 2025, supported by a modest cut in interest rates,” she said.

Despite the cash rate having risen four percentage points since May 2022 to 4.1 per cent, strong refinancing activity and competition have limited the pass-through to average new mortgage rates, which have risen less than four percentage points, Ms Timbrell said.

According to the Australian Bureau of Statistics’ (ABS) lending indicators data, the value of total housing loan refinancing between lenders remained high at $20.2 billion in June 2023 (although it fell 3.1 per cent that month).

ABS head of finance statistics Mish Tan said the value of total refinancing between lenders was 12.6 per cent higher in June compared to a year ago.

“Refinancing activity has remained at record highs in recent months, as borrowers continued to switch lenders amid interest rate rises,” Ms Tan said.

The fixed rate roll-off is in “full swing”, according to Ms Timbrell, who added that while fixed rates have sheltered some households from the financial impacts of higher rates, the current monthly rate of expiring fixed loans is near its peak.

“This is squeezing some household cash flows and may be causing falling excess mortgage repayments,” Ms Timbrell said.

She said the share of income going to housing payments is expected to reach a record high of around 10 per cent.

“This is undermining confidence of indebted households, though we expect arrears rates to remain low,” she said.

According to the RBA, 880,000 fixed-rate loans outstanding in early 2022 will expire in 2023, and 450,000 will expire in 2024.

Meanwhile, increasing housing prices are putting upward pressure on housing lending while rising interest rates have spurred higher refinancing activity, Ms Timbrell said, and suppressed sales volume has limited the growth of housing lending so far.

ABS data showed that new loan commitments fell by 1.0 per cent (seasonally adjusted) in June 2023 and 18.2 per cent year-on-year to $24.6 billion.

New owner-occupier loans fell by 2.8 per cent in June (and 19.1 per cent year-on-year) to $15.91 billion.

While investor loans increased by 2.6 per cent in June to $8.69 billion, this represented a year-on-year drop of 15.0 per cent.

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