2022 will build on the promising post-Delta recovery
Our last Industry Update for 2021 reflected on the economy and the outlook for 2022. Adelaide Timbrell, Senior Economist, ANZ has rounded up the key insights from 2021 and gives predictions into what brokers could expect and plan to for 2022.
Consumption will drive the economic recovery
Household consumption fell from 55% of GDP to less than 53% over the last 18 months. However, we expect consumption to be a key driver of the 2022 recovery, outpacing GDP growth substantially. Rapid falls in the household savings rate between the 2020 waves of COVID and Delta lockdowns are a strong signal that consumption could outperform GDP in 2022.
Strong labour market and consumer confidence could boost spend
Strong labour market conditions and swift improvements in consumer confidence post-Delta lockdowns will encourage households to spend more and save less. This will be a boon for consumer-oriented businesses in Australia through 2022.
Expectations for 2021-22 capex strengthened considerably
Q3 results represents survey responses from October/November, as Delta lockdowns were easing. Total capex plans for 2021-22 were up 8.7% (from $128bn in Q2 to $139bn in Q3), which was much steeper than we anticipated. This suggests businesses have shrugged off the short-term impact of the lockdowns, and we should see a return to strong capex growth in coming quarters.
House prices are set to slow in 2022, and fall in 2023
The 20%-plus gains in house prices over the past year won’t be repeated in 2022. Affordability constraints are biting, new listings have lifted strongly, and macroprudential tightening and higher mortgage rates are set to constrain lending over the coming year. While a return to immigration in 2022 will be a plus, these negatives are likely to more than offset that positive. We expect average capital city housing prices to rise just over 6% in 2022, and to decline around 4% in 2023.
Housing price inflation the highest in thirty years
National house prices rose at their strongest pace since the late-1980s; and building approvals hit their highest level on record. Low interest rates, strong fiscal support during the worst of the lockdowns, and high savings all combined to drive prices up strongly, a trend we’ve seen repeated around the world.
The boom in construction will also peter out in 2022
Alongside the strength in prices, and helped by fiscal support, housing approvals hit a record high earlier this year. There’s still a substantial amount of work in the pipeline, but approvals are falling rapidly as the impact of the federal HomeBuilder program and other government support schemes unwinds. The large pipeline of activity will underpin strong housing construction through to mid-2022, before activity brought forward by government incentives dries up. A lift in apartment construction will cushion the fall.
Macroprudential and higher rates will be the theme in 2022
In early October, APRA lifted the interest rate serviceability buffer by 50bp from 2.5% to 3.0%. Further measures look possible. Another lift in the buffer or a measure which targets a combination of high debt-to-income and high-LVR loans is the most likely in our view. Financial conditions are already tightening and the market may do some of APRA’s work for it. Indeed, the rise in fixed mortgage rates over the past few weeks may see lending slow enough to obviate the need for further macroprudential measures.
High savings and increased buffers have alleviated financial stability concerns
Very strong household savings ratios of 10-22% since COVID began (compared with 3-7% in pre-pandemic years) have provided many households with strong buffers. These buffers lower the risk of arrears ahead of interest rate increases or potential economic shocks.
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