House prices in Australia will surge during 2022/23 as unprecedented low interest rates and less restrictive lending conditions deliver a ‘very, very attractive environment’ for borrowing, a leading economist says.

Speaking online during the Housing 100 breakfast hosted by Housing Industry Association (HIA) last Thursday, Westpac Chief Economist Bill Evans said Australian dwelling values would fall by a total of five percent from the beginning of April 2020 to the end of June next year.

Of this, 2.7 percent of the decline has already occurred whilst a further 2.3 percent contraction is expected.

Beyond that, however, Evans says prices will surge by 15 percent in 2022/23.

“I think you are going to have a very, very attractive environment (for housing in 2022/23)” Evans said.

“I think those very low rates will be sustained, I think governments will be focused on rebooting the economy rather than trying to restrain bank lending … and regulators will be supporting the market.”

According to Evans, prices will respond to COVID in three phases.

The first stage has seen price declines since the beginning of April in response to the June quarter economic slowdown.

The next phase will see a stabilisation which will involve additional modest contractions overall as values fall by a further eight percent in Melbourne but stabilise elsewhere.

This will come on the back of low interest rates and a modest economic recovery in the second half of the year.

Beyond that, Evans expects the market to enter a third phase during 2022/23 which will see prices rise by an average of fifteen percent.

Primarily, this will be driven by sustained low interest rates and an accommodative borrowing stance from banks and regulators.

On interest rates, Evans expects the Reserve Bank of Australia to drop the official cash rate to just 10 basis points or 0.1 percent at the bank’s board meeting on the same day that the Federal Budget is released.

Should that happen, the three-year fixed rate on home mortgages (already down from 3.6 percent) may fall from 2.3 percent to below two percent.

As well, there will be an accommodative stance on borrowing practices from banks, governments and regulators as governments seek to restart the economy notwithstanding lending standard shortfalls identified in the Hayne Royal Commission.

Granted, Evans acknowledges a near-term challenge as borrowers owing $180 billion in deferred mortgages will soon have to restart their repayments.

Still, he insists that this will be manageable.

Of around 620,000 mortgage loans which have been deferred, Evans says no more than five to ten percent will become distressed loans.

With around 410,000 properties selling each year, this will not be enough to create significant pricing issues.

Already, he says a good number of borrowers have restarted their repayments whilst banks are committed to avoiding large numbers of distressed property sales.

Affordability, meanwhile, will not be a major headwind  as the combination of a five percent decline from April 2020 until June 2021 and the fifteen percent increase over the year to June 2023 will net out to a ten percent rise over three years – manageable for most buyers in light of the low interest rates.

Moreover, signs of house price stabilisation are already occurring.

The number of loans approved for housing ‘upgraders’ has almost returned to pre-COVID levels.

That for residential investors has stabilised after four years of decline.

In terms of cities, Evans says Brisbane and Perth will each see prices surge by 20 percent in 2022/23.

During that same year, prices in Sydney, Melbourne and Adelaide will increase by 14 percent, 12 percent and 10 percent respectively.

Evans comments came one day before the Commonwealth announced plans to simplify lending obligations by no longer requiring lenders to independently verify income and spending information provided by borrowers when assessing loan applications.

Still, not all commentators share Evans’ optimism.

Last month, AMP Capital Chief Economist Shane Oliver said he expected the trough from April this year to when prices bottom out to come out at 10 to 15 percent – more if a second wave of COVID takes hold in Australia.