RBA Survey: Average Sydney house price to increase by $216,300 in 2021, say experts

Posted: 31 May 2021 11:06 am
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Sydney homeowners could earn more than double the average annual wage by the end of the year according to the latest expert house price predictions.

In this month's Finder RBA Cash Rate Survey™, 40 experts and economists weighed in on future cash rate moves and other issues relating to the state of the economy, with all panelists expecting a rate hold for this month.

Property market growth has surged in recent months, with five capital city average home values already increasing by 7 percentage points between January and May according to CoreLogic figures.

Yet experts believe further price hikes are still to come – Sydney and Perth are expected to see the biggest gains, with economists foreseeing an 8% increase in property values over the next seven months.

Applying this forecast to current year-to-date price hikes means Sydney prices would increase by an unprecedented 21% in 2021 alone.

This would add $216,300 in value to the average Sydney property.

Graham Cooke, head of consumer research at Finder, said that the Sydney property market is continuing to reach unprecedented levels.

"The current average salary is around $92,034, so if our experts' predictions are correct, the average Sydney homeowner will earn more than double the annual wage this year – equivalent to a fifth of the average property value through 2021.

"To put that into perspective, prices rose by just 4% in 2020 and 2019, and dropped by 8% in 2018.

"A 21% increase would be the highest annual increase for the Sydney property market in recent history, beating the previous record of a 15% rise in 2013," Cooke said.

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Experts also predicted a June–December gain of 7% in Canberra, 7% in Hobart and 6% in Darwin. Full-year forecasts for these cities were not available due to a lack of existing data.

Single parent deposit scheme deemed "too risky" by experts

The government recently introduced a new Family Home Guarantee, whereby single parents can buy a home with as little as a 2% deposit.

More than two-thirds of experts (19, 68%) agree that the scheme is too risky and may put vulnerable borrowers at risk.

Saul Eslake of the Corinna Economic Advisory, compares this level of lending to the years leading up to the Global Financial Crisis (GFC).

"You'd think we might have learned something from the US experience in the years before the GFC.

"There are dangers inherent to both individual borrowers and the financial system and broader economy, of encouraging people into home ownership with wafer-thin equity," Eslake said.

Cooke also agrees that the lending scheme is risky.

"Encouraging homeowners to get into the property market with only a 2% deposit reminds me of the 100% loans being offered in Ireland in the months before the GFC.

"With such a small slice of equity in your home, any potential buyers would be very susceptible to falling into negative equity if prices did fall," Cooke said.

76% expect cash rate to hold until at least Q4 2022

All 40 participants that took part in Finder's RBA Cash Rate survey agreed that the cash rate will see no movement on Tuesday.

There are no expectations from the experts that the cash rate will decrease any time in the next 2 years, but a small number of respondents (9%, 4) believe the cash rate could increase before the end of 2021.

Most experts expect the cash rate to increase in 2023 or later (61%, 25) with 15% (6) expecting the increase to take place in Q4 2022.

Cooke said that mortgage holders should remain vigilant, despite stagnant rates.

"Rates may be set to sit still, but that doesn't mean your actual home loan won't become more expensive.

"We've already seen Westpac, CBA and UBank raise rates independently of the cash rate in recent times.

"Now would be a great time to find out what rate you're actually paying. If it's over 2%, you might be able to save significantly by refinancing to a better deal," Cooke said.

Housing affordability sentiment hits all-time low

Finder's Economic Sentiment Tracker gauges experts' confidence in five key indicators: housing affordability, employment, wage growth, cost of living and household debt.

Positive sentiment around housing affordability (0%) reached the lowest level ever recorded since the Finder survey began in 2018.

On the other hand, positive sentiment around employment is at 72%, which is the second-highest it has ever been.

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Here's what our experts had to say:

Nicholas Frappell, ABC Bullion: "Progress towards policy normalization remains hampered by lukewarm employment and wage data."

Shane Oliver, AMP Capital: "While the economic recovery is faster than expected, the RBA's conditions for a rate hike are still far from being met. The jobs market is still a long way from full employment, wages growth at 1.5% is way below the 3% plus pace necessary to sustain 2–3% inflation and in any case inflation is still well below its target zone. So a rate hike remains some time off."

Rebecca Cassells, Bankwest Curtin Economics Centre: "The RBA has continued to reaffirm its commitment to lifting the cash rate only when "actual" inflation is between the 2–3% target, which they don't expect to happen until 2024. Some might say that this is quite a pessimistic outlook given the recovery and acceleration in the economy lately. Will it really take 2.5 years to reach this target? Not if the labour market continues to tighten and wage rises follow. This is a real possibility given the noises on the ground – particularly in Western Australia – and we should expect this to feed through into the wage price index sooner rather than later. If it doesn't then either something is up with the index, or something is up with the ability of market mechanisms to deliver wage increases."

David Robertson, Bendigo Bank: "The next move in interest rates is almost certain to be up, with the RBA likely to start tightening monetary policy by 2023. The current pace of economic recovery combined with fiscal and monetary stimulus may bring this forward to late 2022, but the RBA would prefer to wait for other central banks (e.g. NZ and Canada) to move first, before exiting 'zero percent interest rates'."

Sean Langcake, BIS Oxford Economics: "The labour market recovery is ahead of schedule, but the unemployment rate is still a long way from the level required to generate broad-based wage pressures and drive underlying inflation toward target."

Ben Udy, Capital Economics: "We expect the RBA to extend asset purchases in its July meeting, and given the bank's new lower estimate of the natural rate of unemployment the labour market still has a long way to go before the RBA is satisfied."

Peter J Tulip, Centre for Independent Studies: "Inflation will be below 2% and unemployment will remain above the NAIRU for several years. Those two variables are the only things the RBA should target."

Peter Boehm, CLSA Premium: "The only direction interest rates will be headed is up – it's just a matter of when. Whilst the RBA has indicated rates will likely be held at their current levels for the next few years, it seems more likely its hand will be forced as inflation in Australia and other economies in the Western world heads up. And if rates are increased earlier than predicted, this will reflect a positive sign for employment and the economy. However, it won't be such good news for borrowers (government, corporate and homeowners) who could see substantial increases in their mortgage payments and debt burden."

Stephen Halmarick, Commonwealth Bank: "The RBA has signalled they need actual inflation inside the target range before they will raise the cash rate."

Saul Eslake, Corinna Economic Advisor: "I completely agree with the RBA's insistence that it won't raise the cash rate until the unemployment rate is sufficiently low, to push wages growth up to a pace which is in turn consistent with 'underlying' inflation returning sustainably to within the RBA's 2–3% target band – but I think it is increasingly likely that the economy will reach that point sooner than the RBA's '2024 at the earliest' – especially given that it looks as though our international borders are going to remain closed for longer, as a form of new 'protectionism' which, like the old sort, does give the economy a short-term 'sugar hit' at the expense of our longer-term wellbeing (and which, like the old sort of protectionism, is popular with the electorate)."

Craig Emerson, Emerson Economics: "The RBA is seeking to get unemployment down to low-fours in percentage terms."

Angela Jackson, Equity Economics: "Current inflation forecasts show inflation will not be within the RBA's target range before 2023, at which point the RBA will look to increase the cash rate. Emerging labour and other input shortages may place upward pressure on inflation in the interim, and force the RBA's hand to lift rates early."

Mark Brimble, Griffith University: "Global uncertainty continues and the commonwealth remains challenged with borders, vaccine and election planning all of which is likely to result in the RBA remaining cautious and accommodative."

Tim Nelson, Griffith University: "Asset price bubbles appear to be forming in many asset classes. Government stimulus continues to do most of the heavy lifting."

Tony Makin, Griffith University: "The Reserve Bank is currently independent in name only because it has to set official interest rates in line with US Federal Reserve rates. Otherwise the dollar would appreciate and set back the post-lockdown recovery. The only way for US, Australian and global interest rates to go is up due to rising inflationary pressures and expansionary fiscal policy here and in the US."

Tom Devitt, Housing Industry Association: "We don't anticipate inflation will be sustained to justify a rate rise till 2023, notwithstanding some short-term inflationary pressures as a result of labour and materials shortages, especially in the housing market."

Alex Joiner, IFMinvestors: "The risk seems to be that the stimulus-driven growth may fade and that the economy will continue to need support to push the unemployment rate to a level that sees wages growth accelerate on a sustainable basis."

Leanne Pilkington, Laing+Simmons: "The Reserve Bank appears to be sticking to its previously stated plan to leave rates low until 2024. More pressing is the coming conclusion to the cheap finance scheme the RBA made available to the banks to soften the impact of the pandemic. With this scheme set to end next month, we can expect others to follow the Commonwealth Bank's lead and start adjusting their fixed terms upwards."

Nicholas Gruen, Lateral Economics: "My guess is that the economy will pick up faster than expected and there's the risk of it running into capacity constraints."

Mathew Tiller, LJ Hooker: "Despite positive employment data and strong dwelling price growth, the RBA is expected to continue to hold the cash rate steady."

Geoffrey Kingston, Macquarie University: "Inflation is coming down the track faster than is generally realised."

Jeffrey Sheen, Macquarie University: "I expect sustained and moderate wage and price inflation to emerge only in 2023."

Michael Yardney, Metropole Property Strategists: "The RBA have made it clear they won't increase interest rates until wages rise and inflation moves up. Even though we are heading in the right direction, there are still some headwinds that will delay any rise in rates for a few years."

Mark Crosby, Monash University: "Inflation pressures are likely to increase sooner than the RBA anticipated, leading them to raise at the end of next year or Q1 2023."

Julia Newbould, Money magazine: "I think concerns about inflation might spur the RBA to act now and also give themselves some leeway to move down again if necessary after borders reopen."

Susan Mitchell, Mortgage Choice: "We still need to see tightening in the labour market and a sustained rise in inflation before the RBA moves on the cash rate. That being said, we are seeing more lenders lift fixed home loan interest rates. With the RBA's term funding facility ending in June, I anticipate more lenders will continue this trend."

Andrew Wilson, My Housing Market: "No prospect of underlying inflation moving above 3% in foreseeable future."

Malcolm Wood, Ord Minnett: "Australian underlying inflation at 1.2% year-on-year will take time to reach the RBA's target of sustainable 2–3%."

Rich Harvey, Propertybuyer: "The RBA has repeatedly said interest rates are on hold for 3 years."

Matthew Peter, QIC: "With the March CPI print weaker than market expectations, the RBA will continue with its forward guidance of no rate cuts until 2024. As inflationary and interest rate pressure builds overseas, the RBA can sit on current policy settings and reap the benefits of a depreciating currency."

Noel Whittaker, QUT: "Inflation pressures are increasing – and we are clearly at the bottom of the cycle."

Cameron Kusher, REA Group: "The RBA continues to say that they won't change the cash rate until inflation is back within target range and they also say it won't happen until at least 2024. There's no sign of inflation at the moment and given that no reason for me to think they will lift rates earlier, of course that could change as more data comes to light."

Brian Parker, Sunsuper: "Wage and price inflation not high enough to force a rate hike until at least 2023."

Jakob Madsen, University of Western Australia: "The world interest rates are likely to increase."

Clement Tisdell, UQ-School of Economics: "Interest rate rises in the USA could result in a rise in this date earlier than was expected."

Jonathan Chancellor, Urban.com.au: "The RBA will be happy to see lenders pushing fixed home loan rates higher as it watches the economy improve faster than expectations."

Dale Gillham, Wealth Within: "Whilst there is concern about inflation there are many different variables to consider as we look to open up our economy and get back to work. Currently until the vaccine uptake is more widespread there continues to be a threat of a third or fourth wave of COVID, and so raising interest rates would be premature."

Other participants: Bill Evans, Westpac. Alan Oster, NAB. Christine Williams, Smarter Property Investing.

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