Analysts believe soft property markets, particularly in Sydney and Melbourne , may bottom out next year, amid the banking regulator loosening a constraint on mortgage credit and an expected official cash-rate cut.
The Australian Prudential Regulation Authority proposed on Tuesday that banks should change the way they assess customers’ ability to meet their mortgage repayments in a move that would let people borrow more. Since 2014 customers have been required to meet an interest rate minimum floor of 7% but now lenders will be allowed to set their own benchmark, so long as there is a 2.5% buffer above the mortgage rate.
HSBC’s chief economist, Paul Bloxham, told Guardian Australia the housing market had been showing some early signs of improvement before the election. Auction clearance rates had lifted, the pace of house price declines had slowed and consumer sentiment was improving, Bloxham added.
“We’re of the view the housing market will stabilise in the second half of this year,” he said.
Other factors contributing to a recovery will be the government’s election promise of first-homebuyer support and the rejection of Labor’s proposed negative gearing changes.
Bloxham said strong population growth in Victoria would support a quicker turn of momentum in the Melbourne property market. “In contrast, Sydney has got a lot of supply coming on stream in the apartment market so that might take longer for it to work through,” he said.
The JP Morgan senior economist Ben Jarman is slightly more pessimistic and expects things to be soft for awhile.
“Our view is that house prices are going to keep falling, the policy supports coming through are helpful but, at the end of the day, they are in response to data which has weakened more than authorities thought,” he said.
“We don’t think credit availability is going to change meaningfully, that seems to have been what started this whole unwind of house prices.”
The investment bank is predicting a 5% drop in property prices this year but Jarman expects a levelling out by the second half of 2020.
CoreLogic’s head of research, Cameron Kusher, said he had been expecting the market to bottom out next year, with overall falls of 20% in Sydney and Melbourne.
“But now, if these changes do go ahead … we might actually find the market bottoms earlier – maybe towards the end of this year – and potentially next year we’ll get some slight growth,” Kusher said.
“I certainly don’t think it’s a big enough change to lead to rapid acceleration in prices, but I certainly think it will bring some stability.”
A Grattan Institute fellow, Brendan Coates, expects the bank regulator’s changes would help Melbourne and Sydney rebound because they had been hit hardest by the serviceability rules. “It was becoming untenable to be using a 7% interest rate benchmark when mortgage rates were at less than 4% and likely to fall,” he said.
“Expectations are a big driver of prices, and prices have been falling for a while and people will be cautious to get back into the market before they know it’s coming to an end.”
An RMIT property expert, Chris Eves, said he was expecting a property price turnaround in at least six months.
“Adelaide, Darwin and Perth are not going to kick back as quickly as the eastern [seaboard] but some of those larger regional centres like Geelong in Victoria will [improve] rather quickly,” he said.
He said it was a prime time for first homebuyers and those looking to upgrade because the market was soft and there was less competition.
“Yes, the market might not have bottomed but, what we find is when the market turns, say, if it’s taken 12 months to go down, it increases very, very quickly once it starts moving up,” Eves said. “Those people trying to wait for the bottom of the market tend to get caught out.”
High-rise apartment prices could continue to struggle because of oversupply but medium-density units in good locations were likely to bounce back quicker, Eves said.
The Reserve Bank governor, Philip Low, this week flagged that the board “will consider the case for lower interest rates” at its next meeting on 4 June. All four major banks now forecast the RBA will cut rates from the current 1.5% at that meeting.
source: the guardian