Westpac's economics team has revised up its forecast for the Australian housing market following clear signs of stabilisation in recent months.
Auction clearance rates have returned to their long-run averages. We're not seeing the same level of pre-auction withdrawals, while prices stabilised in February and looked to have posted decent gains in both March and April.
We think this marks a significant shift in momentum and we now see property prices holding flat for calendar 2023, rather than the 6-7 per cent decline we saw previously. The peak-to-trough correction now looks like being about 10 per cent, rather than 16 per cent.
There are three factors driving this improvement. Firstly, a much bigger than expected resurgence in net migration inflows, which is boosting demand; second is the rise in construction costs, which is curbing the amount of new housing coming onto the market; and the third factor is very thin on-market supply: sales have dropped significantly in the past year, but new listings have fallen by even more.
Even so, the prospects for gains remain quite limited. We still have high interest rates in Australia, with a further cash rate increase from the RBA expected in May, while the economy continues to work through a slowdown associated with that interest rate tightening.
Affordability is still going to be an issue for buyers in 2023, with the net result for a flat year for prices before gains re-emerge in 2024 as the RBA transitions to a rate cut cycle.