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Westpac Housing Pulse

Detail on how the changed economic outlook is expected to flow through to property markets

22 February, 2022

Australia’s housing market boom is showing clearer signs of slowing with sentiment pointing to a decline in turnover through the first half of 2022. More importantly, the medium term outlook has shifted materially with an interest rate tightening cycle now expected to see a broad-based correction phase begin later this year, continuing throughout 2023 and into 2024. Our sentiment-based indicators are likely to capture this shift more fully in coming months.

Our February Housing Pulse provides more detail on the changed outlook, including the inflation and labour market challenges shaping the rate view and how this is in turn expected to flow through to property markets. The current picture on markets shows a gentle slowing with turnover still running at relatively high levels amid tight conditions in terms of both on-market supply and rental vacancies. Deteriorating affordability has continued to weigh on buyer sentiment but interest rate considerations have yet to really impact.

States trends are showing a further divergence that we expect to remain a feature throughout the coming slowdown and correction phases. Three distinct groups are forming, reflecting the extent of affordability pressures and susceptibility to higher rates. NSW and Vic sit firmly in the ‘most sensitive’ group and are already showing signs of price momentum stalling. WA and Tas look to be a little less sensitive, with a milder slowdown to date and other factors suggesting they will be less susceptible to weakness. Qld and SA already stand out as likely to be the least sensitive, with price momentum accelerating in recent months, tight markets and more headroom around affordability.

While performances will vary, the common shock of a sustained rise in rates will impact all markets over the next few years. Housing will in effect become hostage to outcomes across the wider economy with prospects resting heavily on how successfully policymakers, the RBA in particular, guide Australia through these looming challenges.

Read full report 'Westpac Housing Pulse February' (PDF 667kb)