Since the Coalition hung onto power, and regained its majority, there has been a noticeable change in sentiment around property.
At Long Property, our volume of enquiry has picked up c 30% since the election, mainly from prospective buyers who were previously taking the ‘wait and see’ approach. We’ve found these clients more eager now to establish their pre-approvals, and prepare for upcoming purchases.
The news headlines have also now completely reversed from just 3-6 months ago. Leading the news stories last week in the AFR were the following three articles:
- Expect house prices to rise in 2020
- Confidence is returning to the market
- Home buyers are back in the game
Leading economists are now predicting that house prices will stabilise or turnaround in the second half of this year (the AFR article ‘Rate cut to end house price slide’ summarises many such views, see here).
The optimistic outlook is based on the following key factors:
- Earlier than expected RBA rate cut (0.25% cut announced yesterday, see Patrick’s article here for more details)
- The banking regulator APRA’s recommendation to reduce the 7.25% serviceability test for borrowers
- The defeat of Labor’s negative gearing and capital gains tax changes at the federal election; and
- The pending stimulus of a new scheme where in certain cases the government will pay Lenders Mortgage Insurance for first home buyers
The market hates uncertainty, and much uncertainty has now been removed with both the federal election and banking royal commission now over.
With conditions harder for developers, completed residential construction work has also fallen 3.2 per cent in the last year alone – with approvals down 27.3 per cent – and a further decline expected by both Treasury and the RBA. This could also place upward pressure on housing prices until developers respond. (see here)
As a sign of the renewed confidence, auction clearance rates have already picked up (albeit off a very low base) – both the Melbourne and Sydney property markets have just reported peak level results for the year with clearance rates now trending towards 70%. This is higher than the same time last year, and higher than the roughly 50% clearance rate achieved so far this year. (see here)
There are still a number of drags on house prices though:
- In particular, credit conditions are still tight with housing finance still falling – APRAs recommendation to change the 7.25% serviceability test is still only one of many factors which impact borrowing capacity
- Housing is still expensive for many compared to incomes and rents; and
- Household debt remains high
The market is also still having to deal with an earlier surge in the supply of units, a large collapse in foreign demand, and many interest only loans reverting to principal & interest repayments, which increases debt servicing costs.
Shane Oliver, Head of Investment Strategy and Chief Economist at AMP Capital explains more here. However he also explains why he expects capital city average house prices to have a top to bottom fall of 12% before recovering (and they have already fallen 10%, implying the bottom of the market may be near).
We are keeping a close eye on the banks’ lending policies, jobs data, and the possibility of further interest rate cuts. My personal view is that these factors will have the biggest impact on house prices over the next 3-6 months.
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