Gloom before boom for home prices
“Yet there will be locations where distress selling could be more significant and the spectre of negative equity weighs heavily on households. Given Australia’s high household debt and lower population growth, house prices will struggle over the coming years.”
While Macquarie senior economist Justin Fabo expects national house prices to fall by up to 5 per cent, he added the pace of decline could be ebbing in Sydney and prices are starting to lift in several capital cities and in regional areas.
According to CoreLogic, home values rose in Hobart, Darwin and Canberra in August. Prices also rose in regional New South Wales.
“The true test of resilience will be next year when some of the fiscal support tapers and support from lenders is wound back,” Mr Fabo said.
“We see a good chance of very modest dwelling price growth next year, supported by some improvement in the economy but, most importantly, the very low level of interest rates.”
The Reserve Bank of Australia’s move to cut interest rates to a record low 0.25 per cent – and the prospect of a move to 0.1 per cent at its November meeting – has translated to lower rates on home loans.
Both Commonwealth Bank and ING Australia trimmed their standard variable rates for owner-occupiers last week.
Cheap rates are expected to help revive interest in the property market as economic growth and job creation recovers in 2021.
“As supportive measures are withdrawn, house price falls will be cushioned by low rates, a recovering economy and pent up demand from buyers, keeping price declines mild and in the range of 5 per cent to 10 per cent,” said QIC chief economist Matthew Peter.
Dr Peter reckons prices of high-density apartments, especially in Sydney and Melbourne, could still see falls in excess of 10 per cent given relatively strong supply and slower recovery in international student and permanent migrant arrivals.
Yarra Capital head of macro and strategy Tim Toohey says he is “reasonably optimistic” on the housing market. He says gains of between 5 per cent and 10 per cent by the end of 2021 are possible given assurances from policymakers that rates will remain low for several years.
“While low immigration and foreign buying will limit the gains we believe the improvements in affordability will more than offset the decline in immigration, at least in the nearer term,” Mr Toohey said.
Westpac chief economist Bill Evans recently forecast home prices could rise 15 per cent over 2022 and 2023.