As an analyst I must say I am struggling to keep up with all the discussion surrounding housing at the moment.
The topic has gone into hyper drive with it being very likely a major election issue come the next federal vote.
On the topic of affordability we recently shared our opinion some weeks back on how to ease affordability and have not moved from those views.
Today I am more interested in giving you an update on how our 2017 Housing Boom and Bust forecasts are playing out at the capital city level since we have moved into the June Quarter and in no time it will be mid year.
Right now SQM’s forecasts made in its last Housing Boom and Bust report, released November 2016 for this year, appear to be on track based on asking price movements for the first quarter.
We of course wait for the ABS and APM to update their March quarter results but we think it is very likely those two organisations will record results in line with our indicator asking prices series with perhaps a higher number recorded for the overall weighted capital city average.
We are thinking the headline number will be 2% plus which would make for a very strong March Quarter, traditionally the weakest quarter of the reporting year.
The cities we were most bullish about for this year, being Sydney, Melbourne and Hobart appear to be rising at the upper end of our forecast range while Perth and Darwin continue to record falls as forecasted.
Canberra is surprising us on the upside with a large spike in asking prices for the first three months of the year of 6.6% for houses and 3.0% for units; making our 3% to 7% price gains call for the full year look very conservative indeed.
We will hold onto this forecast for now and wait for confirmation from APM and the ABS before a probable revision upwards.
Looking at the stock on market numbers it is hard to see where this market strength is coming from.
There are more than ample listings in Canberra with no sign that stock is being absorbed at any increasing rate.
Yet when I turn to the local rental market it is clear renters are out in force, driving vacancy rates down and rents higher.
The massive unit oversupply period appears to be over with renters and owners now occupying most of that stock.
Vacancy rates have now fallen back below 1%.
Perhaps this recovery has been driven by population growth?
The ABS suggests the ACT population increased by 5,000 people last financial year (1.3% up) and would no doubt be up again this year.
Given now there is only about 300 vacancies in the local market at any one point in time, an increase of 5,000 people, translating into an increase in underlying demand of some 2,200 dwellings would put pressure on the local market, particularly if construction has not yet come back.
About two weeks ago, there was a real chance of our forecasts being revised to our Scenario 3 view of the world where that scenario assumed more aggressive action by the Australian Prudential Regulation Authority (APRA) by June and a possible rate rise later in 2017.
Yes, APRA has stepped into the market again, but this was far weaker action than envisioned.
And I think by the time we get to winter, it will be rather obvious the Sydney and Melbourne markets have not slowed down.
This may then create additional community pressure for the Reserve Bank, APRA and the Federal Government to take further action to ease these markets, which may then pave the way for such action later this year.
Ultimately we think this course of events is the most likely trigger for the next downturn in these cities.
And if it were to occur with a lifting in interest rates as the money markets are still pricing in for 2018 then the long awaited downturn for Sydney and Melbourne would be reality next year.
But that is all in the future.
For now, we see no reason, outside perhaps Canberra and maybe Hobart, to revise our Scenario One Forecasts.
The Sydney and Melbourne markets will continue to rise through the rest of autumn and well into winter at least.
The reality as it stands right now, is it is way too early to call the downturn or what type of correction the next downturn will be for Sydney and Melbourne.
There are still many x factors that could either create a shallow downturn in prices, a far deeper one or no downturn at all.
SQM RESEARCH WEEKLY ASKING PRICES
The table below reveals weekly asking prices for the week ending 11 April 2017.
Monthly and yearly changes are also given.