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Australia’s biggest bank believes our property markets are on the cusp of a boom

Australia’s biggest bank

Australia’s biggest bank – the CBA – just upgraded its housing market forecast, joining the long line of economists that have done a 180° about-face.

CBA economists think Australia’s housing market is “on the cusp of a boom”, saying that surging momentum in the property market and leading indicators pointed to strong price rises.

They are forecasting that dwelling prices will rise 8% in 2021 and 6% in 2022, with house prices rising 16% in that time and unit prices by 9%, continuing the disparity in these two segments of our property markets.

Australia’s biggest bank

If Sydney and Melbourne home values grow by 12 per cent in the next two years that would mean Sydney’s median price would jump to around $1.2 million, and Melbourne’s would increase to $920,000, an increase of  $160,000 in Sydney and $110,000 in Melbourne.

Of course not all properties will increase at the average rate – some will outperform the averages while others will languish – but that’s how averages work isn’t it?

CBA’s house price forecasts in underpinned by no change in the cash rate for the next two years, which is likely considering the Reserve Bank stated that they were unlikely to change their interest rate for three years.

The main risks to the bank’s forecast property boom were:

  • a significant outbreak of COVID followed by large-scale lockdowns,
  • a hike in interest rates, and
  • the re-introduction of macro-prudential measures to slow the rate of lending.

The bank’s head of Australian economics, Gareth Aird wrote: 

“We do, however, factor in a modest increase in fixed rate mortgages, which will rise if the RBA removes or raises its target yield on the 3 year Australian Government bond, as we expect in the second half of 2021.

At this stage we consider the reintroduction of macro-prudential measures to be a relatively low risk in 2021.

However, if new lending accelerated too quickly, particularly to investors, there is a risk that the Australian Prudential Regulatory Authority (APRA) could reintroduce macro-prudential measures to slow things as they did in 2017.

History shows that prices can rise very quickly when the housing market is on a roll. Indeed it may turn out to be the case that the growth profile for price outcomes over the next two years ends up more front loaded than our current projections.”

What an about-face…

It’s a stunning turnaround from the dire predictions made during the pandemic’s early days last year.

At the beginning of the pandemic, CBA economists forecast an 11 per cent fall in house prices over three years under their ‘best case’ pandemic scenario.

But it’s the bank’s worst-case scenario of a prolonged downturn that had factored in the risk of a 30 per cent plus fall in prices, which received a lot of publicity.

Now it’s understandable that in March last year no one really knew what was ahead, and clearly unprecedented government support as well as fiscal and monetary stimulus underpinned our property markets, supported jobs, and allowed us to have a short sharp recession with a quick rebound.

The bank’s head of Australian economics, Gareth Aird admitted had that this turnaround had taken many in the industry by surprise saying:

“The negative impact that COVID-19 had on Australian property prices turned out to be much more muted than almost any forecaster expected, us included,” he wrote.

“We were earlier than most, however, to recognise this and revised our call in September 2020 to look for a smaller peak-to-trough fall and a decent lift in prices over 2021.

Mr. Aird wrote:

“In many respects, it’s a simple story.

New lending has lifted sharply.

Dwelling prices are rising briskly in most capital cities.

And turnover is up significantly on year ago levels.

The boom is being driven by record low mortgage rates coupled with a V‑shaped recovery in the labour market.

Borrowing rates, which are the single biggest driver of prices in the short run, remain below the rental yield in most markets across Australia.

This is an unusual situation and means that property markets across the country need to find an equilibrium.

For the bulk of Australia, equilibrium will be achieved via further dwelling price rises.”

 

Article Source: propertyupdate.com.au

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Brisbane

What happened to apartment values in Brisbane over July?

apartment values

Brisbane’s median apartment values reached a 2020 high of $390,000, Now it’s $419,143, up from just over $415,000 last month

Brisbane apartment values are continuing to demonstrate the steady growth profile they have shown in the year to date, according to property data firm CoreLogic.

Values rose 0.8 per cent over July, double the growth of apartments in Melbourne.

It puts Brisbane’s rolling quarterly apartment gain at 2.7 per cent, following jumps of 0.7 per cent in June and 1.2 per cent across May.

Brisbane’s median apartment value reached a 2020 high of $390,000. Now it’s $419,143, up from just over $415,000 last month.

Queensland as a whole has continued to see gross yields over 5 per cent for apartments, much more forgiving when compared to the significant yield compression seen in Sydney, where gross yields have fallen to 2.5%, and in Melbourne at 2.8%. Every other capital city is recording gross yields at 4% or higher.

The gains in the apartment market come as the booming housing market lost a little bit of steam over July.

CoreLogic’s research director, Tim Lawless, suggests one of the reasons house prices are starting to lose a bit of steam is that they are becoming unaffordable for many.

“With dwelling values rising more in a month than incomes are rising in a year, housing is moving out of reach for many members of the community,” Lawless says.

Apartments on offer in and around Brisbane:

Bide
Address: 21 Longland Street, Newstead QLD 4006
Three-bedroom apartments from $950,000 

apartment values

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Bide is a new residential offering nestled in the heart of Newstead, offering 89 apartments.

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Situated just three kilometres from the CBD, Newstead has established itself as one of Brisbane’s most sought-after suburbs.

The dynamic suburb offers residents every amenity, with lifestyle, commercial and entertainment hubs within walking distance, as well as its own zen garden, BBQ and a residents lounge.

Pearl, Main Beach
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Two-bedroom apartments starting from $749,000 

 apartment values

Pearl Main Beach 3550-3552 Main Beach Parade, Main Beach QLD 4217 

he veteran Gold Coast developer Raptis has recently launched sales at its latest Main Beach apartment development, the $160 million Pearl, Main Beach.

The 30-level tower at 3550-3552 Main Beach Parade will have 80 apartments, including a luxury two-level penthouse.

Pearl, Main Beach, is the first foray in to the Main Beach market by Raptis, headed by founder Jim Raptis who started the company in Sydney back in the mid 1960s.

Chevron One
Address: 36-44 Stanhill Drive, Surfers Paradise QLD 4217
Two-bedroom apartments from $858,000 

apartment values

Chevron One
36-44 Stanhill Drive, Surfers Paradise QLD 4217 

Comprising 236 one, two and three-bedroom apartments, Bensons Property Group’s Chevron One stands as an iconic landmark in Surfers Paradise.

Rising 40 floors, the stylish high-rise features an organic sculptural form and rotating geometry that maximises views.

With close to 2000sqm of resort-style amenities, residents will enjoy Chevron’s intuitive design and numerous facilities.

Designed by Marchese Partners, these amenities include a residents’ lounge, floating cinema, dining facilities and sculpted garden.

 

Article Source: www.urban.com.au

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Opinion

We need a top-level inquiry into runaway home prices

home prices

Remember when we used to point the finger at immigrants for causing spiralling property prices, but then we shut the borders for over a year and prices still rose 16 per cent nationally – the fastest rise in at least a quarter of a century? Yeah, me too.

Truth is, untangling precisely which factor has driven escalating Australian home values is hard to do. But if you take a step back, I think we can all agree: demand has outstripped supply. Only, nobody is stepping back. And nobody, it seems, can even agree on this one iron-clad law of supply and demand.

From my observations, combatants in the housing affordability debate usually fall broadly into one of two camps. On the supply side, they predominantly blame restrictive planning laws, regulations and excessive developer charges. On the demand side, they emphasise the role of tax breaks in encouraging speculative investment in property and ultra-low interest rates for facilitating higher borrowing.

And while no side can seem to see it – let alone admit it – their ideologies are showing.

On the supply side – and we must count the property industry, some economists and Coalition MP Jason Falinski, who has set up a new inquiry into housing supply – there is a foundational belief in the wonder of free markets and a general suspicion of government interventions. If only, they say, participants were liberated from harmful rules and regulations, the market could unleash enough supply to match demand, curbing price rises.

On the demand side – into which I lump most housing academics and social and community housing advocates – there appears a common belief in the power of government to step in and change the size and shape of demand for housing, by changing tax rules and (sometimes) curbing immigration.

Having watched this debate unfold for almost two decades, I fall into the “porque no los dos?” camp. Why not both? And so do many economists, although they each have their individual leanings.

In economics, price inflation can occur as a result of either “cost push” or “demand pull” forces. Cost-push factors can include increased developer charges, for example, while demand-pull forces could include things like more generous tax settings. What ultimately determines price is the “elasticity” with which both sides of the equation can respond.

Unfortunately, when it comes to housing prices, we’re in a double bind in this regard. Not only is supply relatively inelastic (it takes some time to build new stock), so is demand (everyone needs a place to live).

Of course, for policymakers looking to stabilise prices, neither side of the equation is completely inelastic. We can make it easier to build properties and we can influence the amount of money people want to throw at housing.

We can do both. We just aren’t – at least not currently.

The good news is the first step to fixing a problem is to admit you have it. And increasingly, this is something both sides do agree on.

In a paper titled Housing: Taming the Elephant in the Economy, released last month, six housing academics who largely fall into the “demand” camp highlight the alarming statistic that property ownership rates for Australians aged under 35 have halved since 1995. “A system that raises housing costs for all Australians, that raises instability and lowers productivity, does not serve the nation well,” they say.

Their paper contains a list of high-level demands, including a royal commission into housing, the restoration of a cabinet-rank housing minister, a permanent housing committee to sit within the national cabinet, a Commonwealth national housing strategy, a beefed-up national housing agency, a redirection of stimulus money towards social housing, and an expansion of the Reserve Bank’s mandate to include “maintaining a more price stable and well-functioning housing market”.

I’d support all of those, including the royal commission. But Falinski baulks at the idea, telling me: “The last thing Australia needs is another royal commission.”

But, again, he also vehemently agrees more action is needed. “I think the problem’s now become so acute that it has to be fixed. There is now a core group of people who are saying, ‘Look, we can’t just ignore the facts any longer.’ ”

Which seems like progress, only the facts – as ever – are far from settled, with Falinski insisting: “Everyone focuses on negative gearing and capital gains tax, but the 800-pound gorilla in the room is supply.”

OK, says one of the demand-side academics, Hal Pawson, from the City Futures Research Centre. Maybe it’s not a royal commission, after all, but a high-level Treasury review, of the ilk of the Ken Henry tax review. “It needs to be reviewed by a body with some independence from government,” Pawson says.

So, I texted Henry to see if he’s up for it. He replied: “Jess. Sure. I’d chair such a review. The question is whether we have a government with the courage to commission it. Ken.”

Call it an elephant, or call it a gorilla, what’s crystal-clear is that Australia’s growing housing affordability crisis is wreaking havoc on the quality of life of all Australians and it needs to be stopped.

 

Article Source: www.brisbanetimes.com.au

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Opinion

House prices take a breath as affordability crunch bites

House prices

CoreLogic figures show that price growth, nationally, during July was 1.6 per cent. To put that into context, growth during this extraordinary surge in prices peaked at 2.8 per cent in March.

House and apartment prices in Sydney rose an astounding 18.2 per cent over the 12 months to July 31 and were up 10.4 per cent over the same period in Melbourne.

Prices in capital city markets at one point were rising by as much as $400 a day. The median value dwelling in Sydney is now $1,017,692 and $762,068 in Melbourne, CoreLogic’s figures show.

Housing affordability constraints would likely see more slowing price growth in coming months.

Sydney recorded the sharpest reduction in price growth during July, but prices still rose by 2 per cent, down from a peak of 3.7 per cent in March.

The price growth in the country’s biggest city is even more remarkable considering greater Sydney spent the month in lockdown.

Prices in Melbourne rose by 1.3 per cent in July, compared to 2.4 per cent in March of this year.

Sydney is not only the most expensive capital city to buy property by some considerable margin, it has also been the city where values have risen the most over the first seven months of the year, says Tim Lawless, CoreLogic’s research director.

“Worsening affordability is a key contributing factor in the [price growth] slowdown in Sydney, along with the negative impact on consumer sentiment as the city moves through an extended period of lockdown,” he says.

Usually, when affordability starts to tighten, it is those looking to purchase their first homes that are the first to feel the pinch. And that is what we are seeing with first home buyers.

First timers are starting to retreat from the market as cashed-up property investors attracted by the prospects of significant capital gains come into the market in greater numbers.

Even though fewer first home buyer mortgages are being approved, the average size of first home loans is rising, as those who decide to press ahead and buy are forced to pay higher property prices.

CoreLogic figures show the rise in prices of the upper 25 per cent most expensive properties across the capital cities is slowing – another sign of affordability impacting the market.

Lawless says that previous “circuit breaker” COVID-19 lockdowns have generally seen housing values remain resilient, but the number of home sales and listings activity has been more substantially disrupted by the most recent tighter restrictions.

“Once restrictions are lifted, it’s likely pent-up demand will flow through to an increase in activity again,” he said. “However, uncertainty associated with the duration and severity of Sydney’s lockdown could see a greater disruption than in previous periods of restrictions,” Lawless says.

AMP Capital chief economist Shane Oliver expects property prices to keep slowing nationally, with gains of just 5 per cent next year.

Dr Oliver says 2023 could see the start of another cyclical downturn in property prices as the interest rate cycle starts to move up more decisively. Prices could fall by 5 per cent during 2023, he says.

 

Article Source: www.brisbanetimes.com.au

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