Westpac has revised its near-term house price forecasts, citing a more substantial boost from lower interest rates and a milder-than-expected recession as reasons for the adjustment.

According to Westpac senior economist Bill Evans, the lender expects a 5% dwelling price correction through to late 2021, followed by 15% surge over the next two years.

“To date our view has been for a 10% fall in prices nationally from the peak in April 2020 through to June next year,” said Evans. “From that point we expected increases of around 4% per annum over the following two years.”

“We now expect many capital city markets to be more resilient with a national fall of 5% between April and June next year, distributed between: Melbourne (–12%); Sydney (–5%); Brisbane (–2%); Perth (flat); and Adelaide (2%). Of most importance is that we are much more optimistic about the pace of price appreciation over the following two years with a total expected increase of around 15%.”

According to Evans, the 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.”

Evans said that he sees the house price profile unfolding in “four distinct stages.”

“The first, which has now largely passed, is the initial impact on prices from the collapse in economic activity in the June quarter. That has seen broad based declines in Sydney (–2.6%); Brisbane (–0.9%); Perth (–2.6%); Adelaide (–0.1%) and a more severe fall in Melbourne (–4.6%). However, the pace of deterioration outside of Melbourne has been milder than we expected back in March,” he said.

“The second stage, which will cover the December and March quarters, will be a period of relatively stable prices, possibly with some modest increases, although Melbourne will be at least one quarter behind the other states and will still be experiencing falls in prices in the December quarter. The third stage will see some limited resumption of downward pressure on prices through 2021, as we see an increase in ‘urgent’ or distressed sales relating to borrowers struggling or unable to resume mortgage repayments. Again, more adjustment is likely in Melbourne than the other cities. The fourth phase will come once this selling pressure has worked through the system and prices lift again.”