19 Oct Is Another Housing Boom About To Begin?
The current correction looks like it is coming to an end and many are saying prices will rise again by at least 10%. So, is another boom just about to begin?
THE LAST PROPERTY PRICE BOOM BEGAN IN 2011
Although the length of the boom changed from city to city:
- In Darwin and Perth, it was an uptick that fizzled out quickly, lasting less than three years.
- For Sydney, Melbourne and Hobart, the boom was significant.
- Sydney was the main beneficiary with prices increasing by 70% between November 2011 and September 2017.
In most major cities, it ended pretty much as soon as the banks began enacting tighter lending standards just before the Financial Services Royal Commission began in late 2017.
Nervousness about access to finance was the main factor driving a complete shift in sentiment towards housing.
THE CORRECTION PHASE
In the aftermath of the housing boom, we’ve experienced a correction.
- Prices may have increased in Sydney by 70% since 2011, but they have now dropped back by 12% since the boom ended.
- In Melbourne, prices didn’t see the highs of Sydney, but the decline so far has also been less.
- Prices in Adelaide and Brisbane didn’t rise by much, but also didn’t really decline much either.
- Hobart prices increased significantly during the boom, but most likely due to the structure of the economy changing , so it seems unlikely prices will see a large decline any time soon.
SIGNS OF A RECOVERY
The current correction does look like it is coming to an end, primarily because there has been a lot of stimulus into the market.
The first positive sign was when search activity on realestate.com.au started increasing just after the federal election in May, with policy ensuring greater certainty for property investors.
Since then, we’ve experienced three interest rate cuts in fast succession and three restrictions removed by APRA on home loan lending and income tax cuts, which has resulted in increased buyer activity.
Whilst whispers of the downturn coming to an end has encouraged buyers back into the market, there is a supply problem as listing volumes are particularly low – the buyers are back but sellers aren’t.
The supply demand imbalance is reflective of an early cycle that will lead to strong price rises in premium suburbs, although it’s not currently showing up across all capital cities.
SUPPLY AN ISSUE, BUT PRICES WILL REMAIN LOW
Although a housing market recovery is underway, conditions are very different this time around and at this stage, it is unlikely we will see a surge in pricing equivalent to the most recent boom.
The biggest problem is that the economy is weak. Interest rates are very low because unemployment is rising.
On one hand, low interest rates are good for house prices as people can borrow more money, but if households are worried about job loss, this will restrict the amount they will choose to borrow.
If unemployment rises too much, this could quickly lead to very negative conditions where people are forced to sell. This scenario seems very unlikely, but it is a consideration.
In addition to the weak Australian economy, there are a lot of other structural differences to the previous housing recovery and boom.
Investor activity has dropped significantly and is unlikely to get to the same levels we saw at the peak of investor lending in 2015.
Offshore buyers have also pulled back significantly with Chinese buyers in particular showing very little signs of re-emerging.
Home loans are cheaper now, but they are still difficult to secure – banks are slowly easing up on restrictions but the focus on responsible lending is unlikely to change any time soon.
The number of houses available for sale is still low, but should start to increase again as the market gains a bit more momentum.
Confidence in the quality of new apartments is still an issue and will take some time to be resolved.
SO WHAT CAN WE EXPECT?
Premium Sydney suburb prices are increasing rapidly with many achieving double digit growth over the past 12 months.
Interestingly, Gold Coast premium property has also staged a recovery, likely driven in part by Sydney money.
Melbourne seems likely to follow – premium prices are yet to move but search activity is very high relative to listings.
Elsewhere in Australia, it seems more about stabilisation rather than a return to boom conditions. Don’t expect a surge in pricing, instead this recovery will be slow and steady.