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Real estate recovery: Westpac predicts Australian house prices will come roaring back and rise 15% after bottoming out in 2021

Westpac is now expecting Australian capital city house prices to surge by 15 per cent after bottoming out in 2021.

Australia's second biggest bank has revised its property market forecasts to be more upbeat despite the onset of the first recession in almost three decades as a result of coronavirus shutdowns. 

Property price rises are expected to more than offset this year's steep falls in every major city except Melbourne.

Westpac chief economist Bill Evans and his colleague Matthew Hassan said the likelihood of a COVID-19 vaccine would spark a real estate resurgence from next year as interest rates remained at a record-low of 0.25 per cent and governments spent billions on stimulus measures.

Westpac is now expecting Australian capital city house prices to surge by 15 per cent after bottoming out in 2021. Sydney's median price (Mosman house on the lower north shore, pictured) was expected to climb by 14 per cent between 2021 and 2023, more than offsetting a five per cent decline in 2020 and 2021

Westpac is now expecting Australian capital city house prices to surge by 15 per cent after bottoming out in 2021. Sydney's median price (Mosman house on the lower north shore, pictured) was expected to climb by 14 per cent between 2021 and 2023, more than offsetting a five per cent decline in 2020 and 2021 

'This recovery will be supported by sustained low rates, which are likely to be even lower than current levels; ongoing support from regulators; substantially improved affordability; sustained fiscal support from both federal and state governments; and a strengthening economic recovery - particularly once a vaccine becomes available, which we expect in 2021,' they said.

Westpac's housing market recovery tips

SYDNEY: A 14 per cent surge from 2021 to 2023 following a five per cent downturn in 2020 and 2021

MELBOURNE: A 12 per cent increase from 2021 to 2023 failing to offset a 12 per cent drop over one year

BRISBANE: A 20 per cent rise from 2021 to 2023 would more than compensate for a two per cent fall

PERTH: An 18 per cent increase from 2021 to 2023 would more than offset flat prices during the pandemic

ADELAIDE: A 10 per cent rise from 2021 to 2023 would significantly make up for a small two per cent rise

A 15 per cent average increase in Australian capital city house prices between 2021 and 2023 would more than offset a five per cent fall between a peak in April 2020 and a trough from April to June next year. 

Westpac had previously feared a ten per cent fall over that one-year period.

Under its recovery scenario, Brisbane's median property price would surge by 20 per cent in the two years from 2021, more than offsetting a two per cent decline over one year.

Sydney's equivalent price was tipped to climb by 14 per cent from next year, more than making up for the five per cent decline in 2020 and 2021.

Melbourne property values were tipped to increase by 12 per cent but would fail to overcome a 12 per cent drop forecast for the coronavirus downturn.

Perth was expected to enjoy an 18 per cent price resurgence, more than offsetting a flatlining of prices from 2020 into next year.

Adelaide prices were predicted to increase by a lesser ten per cent but this would more than compensate for a small two per cent rise. 

Westpac said a stronger recovery in Brisbane and Perth, compared with Sydney and Melbourne, wasn't good news for younger buyers.

'On the basis of those increases, we would see affordability modestly worse than long-run averages for the nation as a whole, with the advantage enjoyed by smaller states diminishing,' it said. 

Brisbane's median property price was tipped to surge by 20 per cent in the two years from 2021, more than offsetting a two per cent decline over one year. Pictured is a New Farm house in the city's inner-north

Brisbane's median property price was tipped to surge by 20 per cent in the two years from 2021, more than offsetting a two per cent decline over one year. Pictured is a New Farm house in the city's inner-north

Melbourne property values were tipped to increase by 12 per cent but would fail to overcome a 12 per cent drop forecast for the coronavirus downturn. Pictured is a house in the city's inner south-east

Melbourne property values were tipped to increase by 12 per cent but would fail to overcome a 12 per cent drop forecast for the coronavirus downturn. Pictured is a house in the city's inner south-east

Westpac said policies to overcome flat wages growth and create jobs 'will be a very constructive environment for dwelling prices'.

The bank also expected the economy to bounce back from Australia's first recession in 29 years as immigration resumed.

Despite Westpac's upbeat predictions, 2020 will still be a difficult year for home owners, especially in Melbourne where Stage Four lockdowns are still in force.

The bank was also less optimistic about inner-city apartments in Sydney and Melbourne, where the absence of international students and a downturn in cafe trade have caused a surge in rental vacancy rates.

'There will be "pockets" of weakness associated with inner-city high-rise markets in Sydney and Melbourne and those overstretched borrowers who will be exposed by the failure of underlying businesses,' it said. 

Perth was expected to enjoy an 18 per cent price resurgence, more than offsetting a flatlining of prices from 2020 into next year. Pictured is a Cottesloe house in the western suburbs

Perth was expected to enjoy an 18 per cent price resurgence, more than offsetting a flatlining of prices from 2020 into next year. Pictured is a Cottesloe house in the western suburbs

From this month, Australia's big banks are auditing 450,000 borrowers to see if they can service their mortgages again, following six-month repayment holidays. 

Distressed borrowers can apply to have the repayment reprieve extended until March 2021. 

Westpac admitted the final end of mortgage holidays would cause 'a limited resumption' in the property market downturn 'as we see an increase in "urgent" or distressed sales relating to borrowers struggling or unable to resume mortgage repayments'.

The Reserve Bank of Australia is even more worried, last month forecasting in a paper on debt that a 40 per cent house price drop was 'an extreme but plausible scenario'.

National Australia Bank chief executive Ross McEwan told a parliamentary hearing earlier this month one in five distressed borrowers were refusing to answer calls.

'The thing that distresses me right now is, when we're making calls to customers to check in, 20 per cent won't pick the phone up or call back — even if we text, email and phone,' he told MPs.

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