Aussies increasingly fearful of property boom

In fact, according to Westpac’s latest consumer sentiment survey, the ‘time to buy a dwelling’ index decreased 7.9 per cent from 116.4 in March to 107.2 in April, and is now 18.8 per cent below its recent peak in November.

In contrast, the Westpac Melbourne Institute Index of House Price Expectations continues to rise, adding another 2.7 per cent in April to surpass its pre-pandemic level by 8 per cent.

Victoria saw a 10.2 per cent increase in price expectations, while South Australia recorded growth of 8.9 per cent with price expectations in other states steady in the month.

Moreover, Westpac identified a widening divergence between owner-occupiers and investors, with owner-occupiers said to be more sensitive to affordability rather than prospects for capital gains.

But while the property market may soon reach boiling point, the big four bank expects the Reserve Bank board to maintain its current policy settings at its next 4 May meeting and possibly until 2024.

Noting the board’s intention to keep the rate at a low 0.1 per cent for the next several years, Westpac’s chief economist, Bill Evans, opined that the RBA would be wary of lifting the rate prematurely, especially given the 2010 scenario.

“When the index was last at these levels, in August 2010, the Reserve Bank had increased the cash rate by 150 basis points to 4.5 per cent from its GFC low of 3 per cent in September 2009,” said Mr Evans.  

“That sharp increase in rates is likely to have contributed to the index falling 25 per cent over the following year. No doubt the Reserve Bank will be aware of that period and continue to tread carefully with the cash rate.”

But, given that housing affordability appears to be weighing on home buyer sentiment, Mr Evans admitted that the RBA is likely to intervene using macro-prudential-style measures, like those seen in 2015 and 2017, albeit not immediately.  

“Westpac expects that approach to change by the middle of 2022 as the authorities respond to further increases in prices and a likely lift in investor activity,” Mr Evans concluded.