An astonishing rebound in Australia’s housing market is set to send property prices up almost 10 per cent over the next 18 months, according to one of the nation’s leading bank forecasters.

National Australia Bank (NAB) has reshaped its property forecasts for 2023 and 2024 amid a massive resurgence in demand following COVID-19 and an ongoing lack of supply nationwide.

Average dwelling prices across Australia’s eight capital cities are set to soar 4.7 per cent this year and 5 per cent next year with Sydney, Melbourne, Brisbane and Perth leading the way.

NAB’s team of economists said the housing market has proven resilient to consecutive Reserve Bank interest rate hikes, which are increasingly constraining borrowing power for many buyers.

But despite that, a combination of lacklustre supply and rebounding demand after COVID-19 are combining to buck broader economic trends and send the property market soaring upwards.

“The NAB Residential Property Index rose sharply in [quarter two], underpinned by rising home prices and solid rental growth,” NAB experts said in a research note published this week.

“Confidence levels also bounced, with recovery expectations now much firmer. New survey findings point to substantial undersupply of rental property across much of the country.”

Sentiment lifts

Defying earlier predictions of a huge fall in prices in 2022-23, housing in Sydney is set to grow 6.9 per cent in 2023 and by 4.9 per cent in 2024, according to the latest economic predictions.

Property prices in Melbourne are slated to rise 2 per cent in 2023 and a huge 7.4 per cent in 2024.

Brisbane, meanwhile, is set to see prices shoot up 5.4 per cent this year and 2.9 per cent next year, NAB said.

The below table surmises how NAB sees the market developing across the rest of Australia.

NAB’s measure of sentiment across the housing market also lifted markedly over the June quarter, suggesting newfound confidence in the strength of the housing rebound.

Sentiment remains highest in Western Australia (81 points above neutral), but there were also large uplifts in South Australia (+53 points), Victoria (+29 points) and New South Wales (+20).

Confidence is still quite weak in the Australian Capital Territory (-100) and Tasmania (-11).

First home buyers squeezed

Predictions of higher prices are good news for existing home owners, who will likely see their balance sheets rebound in some recompense for rapidly rising monthly mortgage repayments.

But it’s more bad news for aspiring home owners who are struggling to get into the market as rising interest rates squeeze borrowing power and a slowing economy makes banks more reluctant to lend.

Research published this week by the Australian Housing and Urban Research Institute (AHURI) found the proportion of younger Australians who have become first homebuyers has plunged over the past two decades as higher prices have gradually pushed the Australian dream out of reach.

“Over the last 30 years, ownership rates for households at age 30 to 34 have declined substantially, from 65 per cent of people born in the mid to late 1950s being home owners by age 30­ to 34, to only 45 per cent of people born in the mid to late 1980s,” said Stephen Whelan, a professor at the University of Sydney and a co-author of the AHURI research.

“This fall in ownership rate has happened as house prices have nearly tripled, indicating that increasing house prices and falling affordability are associated with a delay in housing market entry for Australian households.”

The AHURI data came as separate Canstar research found that saving as much as $1600 a month is now likely not enough to scrape together a deposit.

Almost half of aspiring first home buyers surveyed by Canstar said they were stressed about being able to save enough to get over the line.