As the sharp rebound in Australian house prices continues the ANZ Bank has increase its growth forecasts for 2020.
The bank expects nationwide prices to rise solidly in 2020, but suggest the pace of monthly gains will moderate, helped by rising new listings of properties for sale.
Lower rates, easier access to credit and increased certainty around housing taxation were the catalysts for the turnaround, but pent-up demand and low volumes combined saw a stronger turnaround than expected.
ANZ now forecast house price growth for Sydney and Melbourne to peak in mid-2020 in the low double digits.
Through 2020, they look for growth of 8% nationwide, with a further gain of 4% through 2021.
Source: ANZ Bank Research
The price recovery is spreading
The price recovery began in Sydney and Melbourne and has broadened to most of the other cities.
Source: ANZ Bank Research
Lower rates are the big catalyst
The house price response to lower rates is fairly typical compared with previous cycles.
As has been the case before, rate cuts are supporting the turn in the housing market.
Housing finance bottomed in May last year and prices troughed in June as access to credit and monetary policy eased.
Pent-up demand and low volumes drove demand for mortgages and prices up sharply.
A supply shortage is looming
Building approvals have fallen sharply, driven by a steep decline in high-rise apartment building approvals.
ANZ report that housing construction has been falling for more than a year. Building approvals have dropped, and work in the pipeline is shrinking.
The drop in approvals to date suggests construction activity will fall until mid-year.
The lags between interest rate cuts and building approvals are lengthening as apartments (which take longer to approve and longer to build than detached houses) become more significant in the housing mix.
Concerns about build quality may also delay or dampen the recovery.
Lower rates and easier access to credit is slowly feeding through into an improve construction outlook and building approvals look set to turn around in the near term.
The ANZ-PCA survey shows that property developers’ confidence about the outlook is increasing, thanks to lower rates and easier access to credit.
Moreover, finance for construction is picking up strongly from both households and developers.
After falling sharply through 2018 and 2019, building approvals now look to be stabilising.
The weakness has been concentrated in high-rise apartment approvals, which are down close to 60% from the peak.
In contrast house approvals are down a more modest 21%.
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