Sep 23, 2020
Some of the economists who six months ago predicted big falls in property prices are now changing their positions.
Firstly, because the collapse in property prices that they forecast hasn’t happened - and secondly because the forward indicators suggest there is growth ahead.
Westpac was one of those who suggested back in March that we would see a significant decline in prices but is now predicting a very moderate decrease from peak to trough.
And it’s also now forecasting big price increases in our major cities in the next few years.
For example, Brisbane house prices are expected to rise 20 per cent over two years after the market bottoms out in mid-2021 – that’s according to Westpac - while Sydney prices could climb 14 per cent.
Melbourne prices are predicted to lift by 12 per cent, Perth by 18 per cent and Adelaide by 10 per cent in the two years after mid-2021.
Nationally, house prices are expected to rise by an average of 15 per cent over the same period, almost double the 8 per cent the bank forecast in April.
Economists Bill Evans and Matthew Hassan say: "Of most importance is that we are much more optimistic about the pace of price appreciation over the following two years."
Westpac's upbeat forecast follows the Commonwealth Bank of Australia's prediction for a rebound in prices from mid-next year, a view which is also rosier than CBA's previous expectations.
There are a couple of things worth noting. One is the frequency with which bank economists change their forecasts.
You have to ask whether their predictions have any value when they are likely to change them 2-3 months later, which is what we’ve just seen from both Westpac and the Commonwealth Bank.
My other comment is that I think they’re both wrong in their assumptions that prices in our major cities fall between now and the middle of 2021.
Prices have been remarkably steady up to this point and I think we will see significant increases much sooner than the banks are predicting.
In some city markets and in many regional markets, prices are rising right now.
***
More evidence that prices are doing well, right now, has come from
this week’s price index from SQM Research.
It indicates that there have been price rises for house markets in
the past month in Sydney, in Melbourne, in Brisbane, in Darwin and
in Hobart.
The capital city average for the past month is a 0.7% rise for
houses.
There have also been price rises for apartments, according to these
figures, in Melbourne, Perth, Adelaide, Canberra and Hobart.
In annual terms, house prices remain higher than a year ago in all
capital cities except Darwin and Canberra.
Nationally, house prices are 4.2% higher than they were a year
ago.
Once again, this shows that the forecasts six months ago of a major
collapse in prices have been wide of the mark.
***
Another sign of strength in real estate markets comes from the
latest data on auction clearance rates.
The combined capital city auction clearance rate for the past week
was 72%, the highest recorded since early March.
By comparison, the previous week recorded a clearance rate of
67%.
This time last year, a clearance rate of 71% was recorded across
the combined capitals.
The clearance rates for the individual cities over the past week
include 72% for Sydney, 89% in Canberra and 69% in Adelaide.
Melbourne had only 11 properties put the auction, given the current
restrictions in that city, so no meaningful clearance rate was
recorded.
***
The federal government’s HomeBuilder stimulus package has helped
bolster land sales over the past quarter and will keep the building
industry active beyond the next 12 months.
That’s according to the Housing Industry Association.
The HIA report on sales of new homes shows the uptake of land in
the three months to August was 61% higher than the previous
quarter, when confidence in the market was low due to coronavirus
lockdowns.
HIA chief economist Tim Reardon says the significant improvement
shows the scheme – which was introduced in June, offering a $25,000
grant incentive to build a new home – has achieved what was
intended.
Reardon says: “The new home sales data confirms that HomeBuilder
will support building activity and protect jobs in the December
2020 quarter.”
The monthly survey of Australia’s largest home builders in the five
largest states showed the rise in sales was fairly widespread.
Additional cash injections on offer for first-home buyers saw sales
in Western Australia surge 175% over the three months to
August.
***
Banks seeking to attract new customers are throwing cash at
homeowners in an attempt to lure them into refinancing their
mortgage.
A number of financial lenders are offering thousands of dollars
through cashback incentives to win over customers looking for
better deal on their home loan.
A flurry of refinancing activity has occurred in the past six
months, as existing borrowers seek to capitalise on cheap interest
rates.
According to the Australian Bureau of Statistics, 113,000 people in
the four months to July have changed lenders through
refinancing.
RateCity research director Sally Tindall says banks are targeting
refinancers as they are often perceived as a more stable
borrower.
Twenty-two lenders across Australia are advertising cashback deals
of up to $4,000 for both new loans and refinances.
Tindall says an ongoing low rate was a better deal in the long run
than an upfront cash incentive, but does note that some banks are
offering cash deals in combination with a competitive rate.
***
Treasurer Josh Frydenberg has called for greater flexibility in the
labour market to drive the jobs recovery, with 458,000 people going
back to work in the past three months cutting the jobless rate to
6.8% despite Victoria's strict lockdown.
The economy created 111,000 new jobs in August, boosting the number of employed people to 12.6 million, though still a little short of the 13 million employed before the onset of the pandemic.
The labour force report countered economists' expectations of a loss of 35,000 jobs and a rise in the jobless rate to 7.7% in August from July's 7.5%.
That’s another set of numbers which show how bad economists are at forecasting pretty much everything.
***
Consumer confidence continues to improve. Sentiment has lifted in
four of the past five weeks, according to a major survey.
Importantly, households are showing increased appetite for making a
major household purchase.
The ANZ-Roy Morgan sub-index measure of whether it was a ‘good time
to buy a major household item’ rose by 5.3% last week – to reach
the highest level since late June.
‘Stay-at-home’ Aussies have shown a strong desire to upgrade their
homes during the pandemic.
CBA credit and debit card spending on household furnishings and
equipment in September is up 28% on a year ago.
***
Now, to finish, I’d like to focus on vacancy rates and rents.
Most of our capital cities have very low vacancies but they remain
relatively high in Sydney and Melbourne – and this has caused rents
to fall in the two biggest cities – and also to drag down the
average situation for capital cities overall.
According to SQM Research figures out this week, the capital city
average is a fall of 3% in house rents over the past 12 months and
a 5.3% fall in apartment rents.
This is despite the fact that rents have risen, in annual terms, in
Perth, Adelaide, Canberra, Darwin and Hobart.
Perth rents have risen 6.2% for houses and 5.9% for apartments,
figures which provide further evidence of the recovery in property
markets in the WA capital.
But the best performance on rents is occurring in regional
Australia.
The average situation for the capital cities is a decline in rents
for both houses and apartments, with that average pulled down by
the situations in Sydney and Melbourne.
But nationally, rents are up 5.4% for houses and around 1% for
apartments.
This tells us that rents are rising, generally speaking, in
regional Australia.
This is no surprise, but vacancies are ultra-low in many regional
cities and towns across Australia.
In many regional centres, vacancy rates are the lowest ever
recorded. Vacancy rates below 1% are common.
It’s all part of the biggest trend currently impacting real estate
– the trend I call The Exodus to Affordable Lifestyle.
Bye for now.