Australian house prices are set to soar by as much as 16% this year, driven by government support and stronger than expected economic growth, the ratings agency Fitch predicts.
This is significantly higher than the agency’s previous estimate of between 3% and 5%, released in December.
Fitch has also bumped up its house price growth forecasts for the US, Canada, Ireland and Denmark.
It said some of the countries have benefited from vaccine programs rolling out earlier than Fitch had expected.
Fitch said the pandemic had also wreaked less economic damage than it had expected, causing it to cut its estimates of unemployment this year.
This, “along with government support measures, has kept household income levels stable for many and fed into strong consumer sentiment,” the agency said.
It said lockdowns enabled people who were able to work from home to save money towards a deposit.
“Lockdowns, border closures and working from home resulted in high savings in 2020, enabling purchasers to save home deposits earlier than expected,” it said.
“Incomes remained resilient for many homeowners and buyers.”
This had combined with record-low interest rates to keep buying a home possible despite rising prices – but the agency warned that first homebuyers might start to find prices too high as investors return to the market.
“Low interest rates in Australia have also started to encourage housing investors into the market, potentially replacing demand from first-time buyers as they start to be priced out,” Fitch said.
It said lack of construction of new homes, together with soaring timber prices, were also pushing prices up by limiting supply.
“Supply constraints are likely to persist at least into next year, due to limited construction during the pandemic – and before the pandemic in the US and Australia – and the time needed to get new projects approved and started,” Fitch said.
Housing prices in Australia are higher than if the Covid-19 pandemic had not happened, according to research from accounting firm KPMG.
Prices for detached houses are between 4% and 12% higher than they would have been without Covid while units are up to 13% more expensive, KPMG said.
“The material decline in mortgage interest rates; extra savings from not spending on holidays and leisure; and generous income support from government and housing market support specifically, has seen property prices rise dramatically in the past six to nine months, past the point to where they would have risen under a no-Covid scenario,” KPMG’s chief economist, Brendan Rynne, said.
“It appears these short-term positive factors have swamped the longer term negative factors associated with the housing market, such as lower population due to the fall in migration.
“But over the next 2-3 years the lower population growth and rising mortgage rates will moderate the current price surges.”
Fitch predicted Australian house prices will rise by between 14% and 16% this year.
It also dramatically increased its forecast for Canadian home prices. In December, Fitch forecast they would fall by between 3% and 5%, but it now expects them to surge by between 10% and 15%.