Australia’s housing markets made further progress with the housing market recovery in our two biggest cities, Melbourne and Sydney, gaining pace with property prices increasing once again over the last month.
Clearly confidence has returned to our housing markets.
Home buyers are back, sellers are putting their properties up for sale, first home buyers are getting a foot on the property ladder and investors are slowly returning.
They are all buoyed by falling interest rates, the prospect of another rate cut early next year, less stringent lending criteria and a generally positive media.
This now marks the fifth consecutive month of price gains in Melbourne and Sydney, which was where the downturn hit the hardest over the last couple of years.
As a result, auction clearance rates are up, asking prices are up, property values are increasing and some property commentators are even forecasting double digit capital growth next year.
However our property markets are very fragmented- not all markets are performing the same, so to explain what’s really happening in our property markets and to give as his forecast of what’s ahead let’s chat with Australia’s leading housing economist – Dr. Andrew Wilson, chief economist of MyHousingMarket.com.au
Watch as we discuss this month’s news:
Same, same for the world economy.
The US – China trade tensions and the uncertainty about Brexit continue to take their toll and these are contributing to a weakness in trade and production.
Recently the International Monetary Fund reduced its global growth forecast for 2019 from 3.2 per cent to 3 per cent, suggesting we’re in a synchronised global economic slowdown. A slow down – NOT a recession.
Another interesting month for the Australian economy
The IMF’s World Economic Outlook also cut its growth forecast for the Australian economy from 2.1 per cent to 1.7 per cent — a level below the government’s and the Reserve Bank’s forecasts of about 2.25 per cent.
Despite 3 interest rate cuts and some tax relief, the RBA’s monetary policy has not stimulated growth and spending like they hoped.
Rather than encouraging shoppers, it seems the rate cuts actually hurt consumer confidence as Australians worried what it implied about the state of the economy.
Of course, the positive effect of this is Australians are paying down their debt faster, rather than spending more.
Maybe this means the RBA should press pause on further rate cuts, since there is no hard evidence of their efficacy.
And it should lead the RBA to questioning the efficacy of quantitative easing, which they’ve been publicly contemplating.
Just like households, businesses are reluctant to spend.
Business investment as a share of GDP is below 12 per cent – its lowest since the early 1990s.
However, one positive is that lower rates mean the Aussie dollar is lower than it otherwise would be
The Reserve Bank keeps reminding us it wants the unemployment rate, which sits at 5.2 per cent, to drop to 4.5 per cent .
This is the point where the RBA believes wage pressures should would get inflation moving again.
But this seems an unrealistic target in the short term with more job losses likely in the construction sector.
Interest rates fell to historic lows.
The recent evidence of a strong rebound in Sydney and Melbourne property values wasn’t enough to stave off a rate cut last month.
In what was a well telegraphed move, the RBA cut the official interest rate to 0.75% on October 1st citing weaker than expected growth in the domestic economy and global uncertainty.
Even though some lenders have already starting lowering their variable rates, it’s going to take more than a rate cut or two to restimulate our economy.
In my mind the government now needs to implement fiscal reforms to drive long-run growth because it’s likely these rate cuts will have a smaller impact than in the past.
Interest rates are already at historically low levels and banks are clearly not passing on the full rate cut.
At the same time many Australians are stashing their cash and paying down debt rather than spending while businesses seem hesitant to invest due to the uncertain global economic outlook.
This means the RBA is going to be challenged by its forecasts and it will take a couple of years before it can get inflation to within this target range and unemployment down to the levels it is hoping for.
Interestingly lower interest rates haven’t stimulated employment or significant economic growth overseas, so they are not likely to have the result the RBA hopes for here either.
However, the rate cuts have had an impact on our property markets with rising property values around Australia.
Auction clearance rates point to higher prices ahead.
Auction clearance rates in both Melbourne and Sydney remained firm over the last month continuing the post-election bounce in confidence in our property markets.
The prospect of easier access to finance, falling interest rates and a tax cut has boosted confidence, driving strong auction results across Australia.
It is unlikely that clearance rates will rise any further now especially as more stock comes onto the market for sale in the next few months.
The Sydney auction market is surging reflecting by an increasing number of properties offered for sale under the hammer and higher sales values.
The Melbourne auction market has also performed very strongly, particularly in the inner eastern and south eastern suburbs.
What’s happening to Asking Prices?
While median prices are often seen as the gauge of how the market is performing, these are a lagging indicator, demonstrating what happened a couple of months ago.
Asking prices are a more timely leading indicator, and they confirm that property prices are rising around Australia.
What’s ahead for property prices?
Overall property values are likely to rise modestly to the end of 2019 before growing about 5 to 6 per cent in 2020.
It’s a great time to buy countercyclically in Sydney and Melbourne and ride the property next wave of the property cycle in Brisbane.
The downside for these capital city markets is minimal and there is now plenty of upside ahead over the next few years.
The rental markets
Our rental markets are still relatively flat, and vacancy rates have crept up a little over the last month for Sydney apartments.
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