With interest rates cut to record lows, Australia’s major banks have reassessed their forecasts for the 2021 housing market. All lenders have pushed up their predictions for prices and sales activity levels – and Melbourne is seen as a star performer.

ANZ expects house prices to grow 17 per cent nationally by the end of the year on the back of the low-interest rates and increased demand.

“The combination of strong demand and low supply is pushing prices sharply higher,” ANZ senior economists Felicity Emmett and Adelaide Timbrell wrote in a research note.

“Housing finance has risen 76 per cent since the low in May, investors are returning to the market, auction clearance rates are running close to 80 per cent, and households are reporting expectations of significant price rises.

“While new listings are picking up, they have not kept pace with sales, leaving stock levels very low.”

In a marked turnaround from the dire predictions of a slump in dwelling prices at the onset of the COVID-19 lockdowns last year, other banks have also hiked up their market forecasts.

The National Australia Bank expects growth of 16.2 per cent this year, while Westpac forecasts 12 per cent growth.

Meanwhile, the head of the Commonwealth Bank, Matt Comyn, says the bank’s analysts have revised their growth projections – from an initial 8 per cent growth rate to 10 per cent and possibly more.

Melbourne’s rising market is now expected to continue going strongly into 2022, although demand in some areas could be tempered as housing supply lifts in Spring.

It’s becoming increasingly common for lenders to offer home loans at below 2 per cent. This bodes well for any prospective seller, as interest rates are the primary driver of housing demand in Australia.

ANZ has almost doubled its previous forecast of 9 per cent growth, as property prices rise by their quickest rate in 17 years.

Economists Emmett and Timbrell say that Sydney, Australia’s most expensive city, is poised to grow 19 per cent in a move that would push the median house price to $1.3 million.

Melbourne, Brisbane, Canberra and Darwin are all tipped for 16 per cent growth, while Adelaide is expected to rank as the slowest capital city with a far from modest 13 per cent.

Perth, where the property market has been sluggish for years, is slated to match Sydney’s 19 per cent growth in 2021. Hobart will follow it with prices to rise 18 per cent.

What is more remarkable is the fact that ANZ sees house prices jumping by double-digit percentages in every market simultaneously.

The last time markets rocketed up like that was at the end of the 1980s.

Rapid price growth remains just half of the story, however. If ANZ’s forecasts are on the money, Emmett and Timbrell anticipate prices will have risen too high and will demand some regulatory clamp-down by the Federal Government.

“By June, we expect prices to be rising at a more moderate pace given the end of government programs like JobKeeper and HomeBuilder and a lift in fixed mortgage rates. By year-end, though, we expect the regulators will step in with macroprudential controls to address the overheating market, with the exact measures likely to be dependent on how the market develops over the next six months or so,” they add.

In this scenario, the Australian Prudential Regulation Authority (APRA) strategy would likely restrict new lending to stop buyers simply borrowing more to chase prices higher.

The closer ANZ forecasts are to the reality, the greater the chances of intervention.

Nelson Alexander director Arch Staver says people who have their loan finance approved would be well advised to purchase a new property sooner rather than later.

He says the pipeline of new stock coming onto the market is not as healthy as possible, and there are only a small number of large “generational-type homes” in key locations in Melbourne that come up for sale.

“Often, the only factor holding prospective buyers back is the fear that these larger homes might be a little too expensive,” Mr Staver says.

“The conditions for buying those homes have never been better because of buyers’ borrowing capacity and today’s historically low-interest rates.”

It’s not just low-interest rates fuelling the strong market. Numerous cashed-up buyers deferred their plans to buy a new property when the lockdowns hit last year.

According to the Real Estate Institute of Victoria, Melbourne’s median house price passed $1 million for the first time in the first quarter of 2021, after a very upbeat 8.8 per cent quarterly increase.

The NAB Group chief economist Alan Oster has also warned that APRA is likely to intervene and try to slow down Australia’s housing market if property prices continue to grow at an exuberant rate.

Mr Staver says when loan funding slows up, it is always the greatest obstacle to property transactions.

More than ever, would-be sellers need to weigh up the impact that that the introduction of macroprudential controls to dampen an overheating market could have on house prices.

At the moment, surveys show that consumer confidence is gradually improving, as is business confidence. COVID numbers are very low, and the prospects for the success of Australia’s vaccination program are excellent. Meanwhile, the national economy is improving faster than many expected and is likely to grow strongly in 2021-22.

Auction clearance rates remain consistently strong, not just in the two big auction capital of Melbourne and Sydney but around Australia.

While more buyers and sellers are back in the market and transaction numbers have increased considerably, the lack of high-quality properties for sale has created a sellers’ market.

That means buyers have little choice and are pushing up values of “A grade” homes and investment-grade properties.

If you would like more information on buying and selling in the current market, please contact any Nelson Alexander office.