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Westpac predicts price falls

Outright house price falls are likely by 2016, when mortgage rates will have reached more than 7%, Westpac’s economists say.

A report issued today details their predictions out to 2023.

It said mortgage rates will average 7% in future, compared to an average 7.5% over the past 10 years.

“This has important implications for the housing market. We expect that mortgage rates will have to rise above this new average to keep inflation in check. As mortgage rates rise, they will crimp housing affordability, worsen net returns for landlords and skew the rent-or-buy decision away from buying. Of course, there are still many unknowns for house prices, such as what will happen to the tax structure over the next 10 years, or to what extent new building will relieve pressure on rents.”

But the report says that even if rents grew on average 4% a year, and there were no major tax changes, the bank’s economists would not be surprised to see house prices cool in 2015 and fall in 2016, and to fail to keep pace with inflation through the second half of the decade.

And from 2015, there will bring a general economic slowdown of some magnitude.

“With house prices no longer rising, home-owners are likely to retrench and turn their focus back to managing debt. And while we are optimistic that global food demand will keep export prices high by historical standards, we wouldn’t go so far as to forecast another surge.”



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