ANZ housing forecasts: Growth to continue, but not at the same pace

The spotlight has been on ANZ Bank lately following the controversial decision to let it proceed with a $4.9 billion acquisition of Suncorp’s banking arm, in the face of resistance from the consumer watchdog, the ACCC.

The merger, the largest in Australian banking since 2008, will see ANZ leap clear of NAB to become the third biggest bank in Australia, taking on around $67 billion dollars extra in home mortgages and business loans, many of them from customers in Queensland.

News of the green light for the merger comes as ANZ has released its latest Housing Outlook.

ANZ now predicts home price growth in Australia’s capital cities will moderate after the unexpected 9.1% jump in 2023, saying some market indicators are cooling. 

Revised Sydney and Melbourne outlook:

The bank has revised down its growth outlook for Australia’s two largest property markets, Sydney and Melbourne.

Previously the bank had forecast home prices in Sydney would rise by 6-7% this year.

It now says 4-5% is a more realistic figure.

It’s also downgraded its outlook for Melbourne this year from 3-4% to 2-3%.

ANZ suggests this is “perhaps due to higher sensitivity to rate increases” in these markets. 

Nevertheless, the report's authors - senior economists Adelaide Timbrell and Blair Chapman - believe the increases we’ve seen in the auction clearance rates in Melbourne and Sydney so far this year “suggest momentum could strengthen a little.”

The national picture 

Across Australia’s capital cities, the bank says “monthly housing price growth has cooled to a 0.5% m/m average over the six months to January 2024 from a 0.9% m/m average over the six months to July 2023.”

“Listings and vendor discounts are (modestly) rising, as is median time on the market, while monthly price increases are slowing.” 

From July there’s the phasing in of the revised Stage 3 tax cuts and expected interest rate cuts by the Reserve Bank of Australia, which should produce “an expected lift in household incomes (which) will support prices from late 2024 onwards.”

And with demand for homes still outpacing supply, ANZ still expects solid price growth in 2024 across its combined capital cities measure of 5-6% and around 5% in 2025.

Brisbane, Perth and Adelaide lead the way

ANZ is particularly optimistic about the home price outlook for Brisbane (9-10%), Adelaide (8%) and Perth (10-11%), saying they are “likely to outperform other cities due to the possibility of a longer running shortage of available homes.”

“Housing prices are at new peaks in these cities and lending in their respective states has grown stronger than other states over recent months, particularly for investors,” economists Timbrell and Chapman say.

They point to listing figures which show the number of properties available for sale at any given time.

“Total listings…continue to trend down in Brisbane and Perth.” 

“This is consistent with our forecasts for stronger price growth in Brisbane and Perth due to the relative lack of availability of homes for sale.” 

Tight supply…

ANZ believes ongoing tight demand in the housing market will help keep a floor under home prices nationally.

The 2024 Housing Outlook report says despite very strong population growth, building approvals have only increased slightly from near decade lows, while “residential construction activity is still well below its previous peak and demand remains strong…amid low vacancy rates and lower-than-average housing listings.” 

But in good news for more supply, Adelaide Timbrell and Blair Chapman say they “expect housing prices to outpace construction costs this year, which could encourage more building.” 

“Price growth of input materials and total output costs are slowing, and it is easier to find construction workers compared to a year ago.” 

The big surprise…maybe times aren’t so tough for most Australians

We hear a lot in the media about a “cost of living crisis” and the impact of high interest rates, but ANZ points out that hasn’t stopped property buyers from taking on bigger and bigger mortgages.

“Despite a substantial reduction in borrowing capacity, average new mortgages for first home buyers are at a new peak while the average size of new other owner-occupier loans is just 0.7% below their 2021 peak,” Timbrell and Chapman say.

ANZ notes that analysis by the Reserve Bank of Australia suggests around 94% of households with variable owner-occupier mortgages currently have enough income to pay for their mortgages and essentials. 

It says that “of the remaining 6% who have an income shortfall, more than half have over two years’ worth of savings to cover the gap between their income and essential expenses.”

Perhaps the most surprising finding in the ANZ Housing Outlook is when the bank looks at its own mortgage books.

ANZ says that about one-third of its customers are “over two years ahead on their mortgages and 70% are at least one month ahead.” 

Despite tougher economic times, “excess mortgage payments in 2023 in Australia were 21.0% higher than the 2015–19 average, despite pressure on budgets from inflation and rates.”

Between 2015 and 2019 the RBA cash rate ranged between 0.75% and 2.5%, a long way short of the 4.35% it sits at today.

Adelaide Timbrell and Blair Chapman won't be drawn on whether the mortgage books at other banks are in a similarly healthy state, but given ANZ is one of Australia’s “Big 4”, it’s not an unsafe bet.

So the next time you hear a homeowner with a mortgage complaining about how tough things are, it could be worth taking that with a grain of salt - knowing they are most probably ahead on their loan repayments and their home is set to increase in value this year.