“But even then, the rapid growth in new lending over the second half of 2020 was stronger than we anticipated. The increase in new lending is now feeling into higher prices for bricks and mortar.”

It’s a trend that CBA expects will continue through 2021 and into next year and, despite the fact, a housing boom seemed unlikely only a matter of months ago, Mr. Aird said: “in many respects, it’s a simple story”.

“New lending has lifted sharply. Dwelling prices are rising briskly in most capital cities. And turnover is up significantly on year-ago levels,” he wrote.

“The boom is being driven by record-low mortgage rates coupled with a V‑shaped recovery in the labour market.  Borrowing rates, which are the single biggest driver of prices in the short run, remain below the rental yield in most markets across Australia.

“This is an unusual situation and means that property markets across the country need to find an equilibrium. For the bulk of Australia, equilibrium will be achieved via further dwelling price rises.”

A critical assumption underpinning CBA’s forecast is the cash rate remaining at its record low of 0.1 percent which, Mr. Aird pointed out, was in line with RBA forward guidance.

While house prices were tipped to rise 16 percent over the next two years, apartment growth would be more modest, rising by 9 percent nationally, the report said.

A string of economists have upgraded their housing price forecasts in recent months, with ANZ ditching its “too pessimistic” prediction of a 10 percent drop to tip strong growth next year. ANZ expects Sydney prices to rise 8.8 percent in 2021, Melbourne 7.8 percent, Brisbane 9.5 percent, and Perth 12 percent.

NAB group chief economist Alan Oster told Domain last week he expected an increase in property prices of 10 percent in most capitals, excluding Sydney and Melbourne, which would rise between 7 percent and 7.5 percent.

AMP Capital chief economist Shane Oliver predicts home prices will surge by 5 percent nationally in 2021 but says inner-city unit prices in Melbourne could fall by as much as 5 percent.

Dr. Oliver expects the upward trend to continue into next year, with some capital cities, including Perth and Brisbane, to experience up to 10 percent growth.

BIS Oxford Economics economist Maree Kilroy said while the house price forecasts looked to be strong, it was important to note these rises would, in part, be offset by the rock-bottom interest rates.

“It might sound strange, but housing affordability has improved. Whilst we talk about prices getting back to pre-pandemic levels, we’ve also had interest rate cuts since then,” she said.

“Houses may be back to being as expensive as they were in 2017 but the environment is completely different to what it was then — the cost of borrowing is far cheaper now.

“It’s not as though house prices are skyrocketing beyond belief.”

Ms. Kilroy said the doom-and-gloom predictions made for the housing market last year were off the back of global uncertainty but as Australia began to progress through the pandemic: “We’ve had a clearer vision of the mechanics at work. The households who would be buying a property are not typically the households that have seen the impact of employment like, say, casual employees,” she said.

“They’ve come out better off almost. You can see that through the savings rate that has increased.” 

https://www.domain.com.au/news/house-prices-to-rise-by-14-per-cent-over-2021-and-2022-cba-forecast-1026369/

Ellen Lutton    National news editor     February 16th, 2021