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Housing in July

The month of July opened with the second RBA cash rate cut in a year, taking the cash rate from 1.25% to a further low of 1%. The impact of this move saw consumer confidence drop to a two-year low across the broader economy, yet in the real estate market, buyer confidence trended upwards, spurring rising first-home buyer demand and a more positive outlook for the property market’s near future.

The cash rate cut comes amidst rising auction clearance rates and another significant policy change in APRA’s lending restrictions, which scraps the 7% loan interest rate buffer, allowing more buyers to borrow more money. These factors have led analysts to conclude that Australia’s property market is close to bottoming out, sooner than earlier forecasts had anticipated.

Amendments are being made in previously gloomy predictions, with many expecting house prices to bottom out in the third quarter of 2019. Domain economist Trent Wiltshire expects a 1% growth in house and unit prices over the six months to December 2019, with further growth to come in 2020 (2-4% increase in house prices and 1-3% increase in unit prices).

Indeed, demand from first-home buyers has seen Victoria top the HIA Housing Scorecard, as buyers take advantage of bottoming housing prices.

Property economist Andrew Wilson asserts that market conditions are at their optimal point for first-home buyers, and Housing Minister Michael Sukkar mirrors this sentiment, urging first-home buyers to get a foot in the door before the introduction of the First Home Loan Buyer Scheme in 2020.

Despite the improving sentiment and easing pressure on the property market, however, economists broadly agree that these do not signal a housing boom on the horizon.

Even with APRA’s removal of the loan buffer, Australia’s property market has emerged from its steep declines with stricter lending conditions than before and tighter household debt. Concerns also surround Australia’s unemployment rate, which sits at an unadjusted 5.2% as of June 2019.

The REA Group worries that the rise in unemployment will weaken the Australian economy. In discussing the potential for future increases in the unemployment rate, REA Group chief economist Nerida Conisbee points the finger at the ongoing trade war between China and the US.

As two of the world’s largest economies, the impacts of the China-US trade war would have wide-reaching consequences within the global economy. Australia, which depends heavily on the Chinese economy, would suffer significantly should China’s economy slump.

As it is, Chinese investment in Australian property has fallen sharply over the past 12 months, though how much of this can be directly attributed to the trade war remains unclear. Nevertheless, the consequences are visible in the numbers, as presented by the Foreign Investment Review Board (FIRB).

The Board reveals that Chinese investment in Australian property has more than halved from its peak value of $31bn of two years ago to$12.7bn. While Indian, Vietnamese and Indonesian investment has been moving in to fill this gap, the effects of the $18.3bn gap reverberated through Australia’s housing market.

Other challenges to the upswing in the Australian property industry were outlined in a BIS report. The report observes that new apartment construction has been increasing at a greater rate, indicating that an excess supply would likely be in circulation.

In Melbourne, the report contends that high levels of supply would ‘constrain Melbourne’s housing prices in 2019 and 2020’. Total growth prediction for Melbourne is modest—median house prices were forecasted to increase by 7% over the three years to June 2022; unit prices by a 4% aggregate increase.

Finally, speculation is already circulating that another cash rate cut may occur before the year is out, a prediction supported by AMP economist Shane Oliver. Capital Economics, similarly, expects a cut to 0.5% by early next year. (ET)

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