13 May 2019
Policy easing and an associated lift in sentiment are supporting a turn in the Australian housing market. A sharp improvement in auction rates has led to some early signs of stability for housing prices after two years of declines, watched carefully by buyers and sellers alike.
In June, prices rose in Melbourne for the first time in 16 months while prices in Sydney were flat after nearly two years of declines. Prices continued to fall in most other capital cities, with Hobart continuing to be the exception.
"Falling interest rates and easing credit requirements have helped to shift sentiment from one of pervasive negativity to cautious optimism."
This change in sentiment has been driven by a combination of factors. The Reserve Bank of Australia (RBA) cut interest rates twice, the prudential regulator eased loan assessment requirements, and the election result delivered increased certainty around taxation arrangements for housing. All of these factors have helped shift sentiment from one of pervasive negativity to cautious optimism.
While the outlook definitely looks more positive, ANZ Research does not expect a V-shaped recovery for prices.
ANZ Research’s view for some time has been that tightening in credit has been the major driver of weakness and, while there has been some easing at the margin, changes to the use of Household Expenditure Measure (HEM) and the introduction of comprehensive credit reporting will offset some of the impact.
Moreover, there is still a substantial amount of supply coming on stream, particularly in Sydney where the rental vacancy rate is at a 15-year high. Though Sydney has fallen the furthest, the supply overhang and rental vacancy suggests the recovery in Sydney is likely to be fairly modest.
Meanwhile, Melbourne prices will benefit from ongoing strong population growth.
Nationwide, ANZ Research expects prices to bottom out in coming months and rise modestly through to the end of 2019, before gaining around 3 per cent in 2020.
Adelaide Timbrell is an Economist and Felicity Emmett is a Senior Economist at ANZ
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.
13 May 2019
05 Jul 2019