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The housing market is predicted to witness 7% growth in prices by the end of the year, at least according to the latest forecast by Westpac economists.

Westpac senior economist Matthew Hassan said the housing market appears to be outperforming expectations despite rate hikes.

“The consistent picture from prices, turnover, auction activity, new finance approvals and sentiment is of a broadening recovery, albeit one that is being led by prices with the volume of activity and demand still relatively subdued,” he said.

Across the five major capital city markets, dwelling prices have now risen 4% over the year to date, reflecting a 5.2% rebound from February’s low retracing just over half of the 9.7% fall over the previous ten months.

Sydney is expected to lead the major capital cities, as it is expected to report a 10% price growth for this year.

Next to Sydney, Perth is set to make the second highest growth this year at 8%.

Mr Hassan said there appears to be two major drivers of the current house-price upturn:

  1. The substantial increase in migration inflows and an associated tightening in rental markets against a backdrop of low levels of ‘on-market’ supply
  2. The significant accumulated excess savings across the household sector from the pandemic lockdowns

Mr Hassan said higher income households who are able to grow their savings over the past two years are under less financial pressure from rising cost and rates, allowing them to use their funds to purchase property.

“They use these funds either directly as investors or indirectly through assistance to first home buyers who may be friends or family connections — this may explain why we are seeing first home buyer activity remain surprisingly elevated despite worsening affordability constraints,” he said.

“While the scale of this behaviour is hard to ascertain, it would only take a small portion of these funds being redirected to property to potentially shift a market that is currently transacting around $100bn a quarter.”

What’s next for this “abnormal” upturn

Interestingly, Mr Hassan said the housing market is currently in an unusual cycle and is likely to result in affordability constraints soon.

“Housing recoveries in the past have only tended to flow through to prices once the RBA is actively cutting rates or is very clearly poised to do so, and typically follow a sustained lift in turnover,” he said.

“Population drivers tend to act more slowly, and indirectly through tightening rental markets and firming yields attracting investor activity.”

The supply of housing is also something to be cautious about, given that any potential comeback from sellers could make price gains harder to sustain.

Given the affordability constraints, price growth is likely to slow to 4% in 2024 and 2025 despite an expected easing in interest rates by around the third quarter next year.

“Near-term, the main uncertainty surrounds the extent to which a lift in ‘on-market’ supply slows price gains,” Mr Hassan said.

“Over the medium term however, the outlook depends on how tensions between a physical undersupply of housing and stretched affordability are resolved, with investors and high-income households being key wildcards.”

A separate forecast from PropTrack sees the housing markets posting a growth of 2% to 5% by the end of the year.

Similar to Westpac’s projections, PropTrack said the limited supply of available properties for sale is a major contributor to the growth in prices.

However, the outlook for 2024 remains unclear given that a large group of fixed-rate borrowers’ mortgages are set to expire from their current interest rates in the lines of 2% to around 6%.

Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.

Update resultsUpdate
LenderHome LoanInterest Rate Comparison Rate* Monthly Repayment Repayment type Rate Type Offset Redraw Ongoing Fees Upfront Fees LVR Lump Sum Repayment Additional Repayments Split Loan Option TagsFeaturesLinkCompare
6.04% p.a.
6.06% p.a.
$2,408
Principal & Interest
Variable
$0
$530
70%
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  • $2000 for loans up to $700,000
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6.15% p.a.
6.15% p.a.
$2,437
Principal & Interest
Variable
$0
$0
90%
5.99% p.a.
5.90% p.a.
$2,396
Principal & Interest
Variable
$0
$0
80%
  • A low-rate variable home loan from a 100% online lender. Backed by the Commonwealth Bank.
Important Information and Comparison Rate Warning

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. Some products will be marked as promoted, featured or sponsored and may appear prominently in the tables regardless of their attributes. All products will list the LVR with the product and rate which are clearly published on the product provider’s website. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of .

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Photo by AndreyPopov on Canva.