House price growth is set to accelerate later this year according to the ANZ Bank.
Earlier this year ANZ introduced a model for forecasting Australian housing prices which forecast a soft landing for our property markets and now suggests that national dwelling prices will rise 2% over 2018 and 4% in 2019.
While this is not what the property pessimists are telling us, it is broadly in line with the forecasts recently presented by Dr Andrew Wilson at my recent National Property and Economic Updates
By the way...if you're in W.A. please join me at the last seminar for this series in Perth on Saturday May 5th because the Perth property market is changing.
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HOW HAVE THE ANZ's MODEl FORECASTS CHANGED?
The ANZ say the drivers of the forecast have changed slightly in recent months.
They have changed their view on the RBA – their expectation now is for no interest rate hikes in 2018 and two interest rate hikes in 2019.
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This is a positive for the model’s forecasts in 2018.
This is offset to an extent by the slightly lower than forecasted price growth in Q1, which means that momentum will be less of a positive for the forecast than previously thought.
The model’s forecasts are broadly unchanged: predicting an annual increase in prices of 2% in 2018 and 4% in 2019.
Underlying this apparent stability, however, are countervailing forces which have pushed the forecasts in opposite directions:
- RBA cash rate and lending rates: a change to the bank's RBA call – they no longer expect any changes in monetary policy in 2018, and instead expect two rate hikes in 2019. For the model’s forecasts, this is a positive for price growth in 2018 due to the lack of interest rate rises. But, the rate hikes being pushed to 2019 is a slight drag on that year’s prediction.
- House prices: actual house price growth for Q1 2018 underperformed relative to the model’s expectations. The model accounts for the momentum that typifies house price growth, so the lower-than-expected performance is a negative for the Q2 forecast.
- Dwelling investment: ongoing residential construction activity is expected to remain elevated in 2018; this is a negative for the model’s forecast due to the additional housing supply. If building activity and completions slow in 2019 – as ANZ expect - then this element will turn positive for the forecast.
- Income growth: gross total income growth improved to 3.4% y/y in Q4 2017 – its best annual growth rate since 2015. ANZ expect this will slowly become more positive for the model’s forecast throughout 2018 and 2019 given our expectation of a gradual improvement in wages growth.
Source: ANZ Research note