A big-four bank has forecast an extraordinary 16 per cent rise for Melbourne home prices in 2021, almost doubling its prediction from just a few months ago.

And Victoria as a whole has regained its market sentiment, with confidence in the property market at its highest since the beginning of 2020.

The National Australia Bank (NAB)’s latest Residential Property Survey has tipped dwelling prices across Melbourne to increase by 16.2 per cent this year — a major jump on the 8.4 per cent rise they predicted in February.

They are then expected to steady in 2022, with experts predicting only a 5.5 per cent rise.

It comes as Melbourne home values hit a new peak last month, rising by 2.4 per cent during the month of March and climbing 4.9 per cent over the last quarter to reach a median value of $736,620, according to property data firm CoreLogic.

Further research from the Real Estate Institute of Victoria revealed last week a typical Melbourne house sold for a touch above $1m in the first three months of 2021 — a record for the city.

NAB Group chief economist Alan Oster said an increase in first-home buyers snapping property — driven partially by record-low interest rates, and amid low investor activity and a lack of foreign buyers — was driving the city’s housing market.

“What’s basically happened is that you’re getting to a situation where people can now afford to pay off a mortgage cheaper than if they rent,” Mr Oster said.

“If you look at the last six months and annualise it, its going up about 15-18 per cent and we don’t really see that slowing.

“So what we’ve done is taken what we’ve already seen and put some more moderate increases in house prices for the rest of the year.”

He said the market was “really optimistic” despite essentially only recouping losses suffered during the coronavirus pandemic.

Nationwide, the dwelling price is tipped to rise by 14 per cent in the next year, followed by a more moderate 6 per cent in 2022.

The bank found a combination of lower interest rates, the HomeBuilder grant, stamp duty discounts and a solid economic recovery played a critical role in restoring faith in the market — and helped offset the impact of COVID-19 job losses, weak rent and falling migration levels.

ANZ is also tipping a 16 per cent rise in Melbourne prices in 2021, while Westpac is predicting 12 per cent followed by a further 5 per cent in 2022.

The Commonwealth Bank has forecast a more modest 7 per cent increase this year.

ARTICLE SOURCE: REAL ESTATE.COM