Property predictions – 5 top economists give their views on our housing markets

What’s ahead for property?

Will there be another interest rate cut?

When will the market turn around?

That’s a question the Property Council of  Australia put to a group of top economists.

Here’s what they had to say:

David Plank, Head of Australian Economics, ANZ Research

1. Will there be another interest rate cut?

“ANZ Research expects two further rate cuts in 2019, which will take the RBA cash rate down to 0.75 per cent.

The economy is currently going through an extended soft patch, with consumer spending especially weak.

This points to the need for additional stimulus to lift the economy.

The tax cuts to be delivered in the second half of 2019 are well timed in this regard, but the RBA has decided it needs to play its part as well.

In addition, the RBA has concluded there is more slack in the labour market than it previously thought.

From the RBA’s perspective this means lower interest rates.”

2. When will the residential market turn around?

“There is increasing evidence that the housing market is starting to stabilise.

The auction clearance rate has lifted in Sydney and Melbourne.

While this in part reflects lower volumes of houses being put up for sale, this in itself is a signal.

It means there is little evidence of forced selling.

Consistent with a rising clearance rate, the rate of decline in house prices has been slowing for some months.

ANZ Research expects house prices in Sydney and Melbourne to continue to fall into the second half of the year, but with the rate of decline slowing further and the market stabilising by late this year or early next. Further interest rate declines will help this stabilisation.”

3. Are you optimistic, pessimistic or neutral about the economic outlook?

“The economy is in the midst of a significant adjustment in house prices that we think was primarily triggered by a tightening in the availability of credit.

But we think the economy will get through the housing downturn without being completely knocked off track.

Well timed tax cuts will assist, as will the RBA rate cuts and the lower Australian dollar.

The growth outlook for 2020 looks reasonable, in our view, especially if the global economy can avoid a major slowdown.

On this front while there are risks to the downside, more policy easing in China and expected rate cuts by the US Federal Reserve should set the global economy on a better path by late this year, early next.”

Joanne Masters, Oceania Chief Economist, EY

1. Will there be another interest rate cut?

“The RBA look set to cut rates at least one more time, most likely in August (although July is possible depending on the data).

Beyond that, a further deterioration in trade disputes and the global economy and/or a rising unemployment rate are the most obvious triggers for rates to fall below one per cent.”

2. When will the residential market turn around?

“There are signs that the housing market is starting to stabilise, and certainly there has been a lift in sentiment following the federal election, APRA consulting about changing the seven per cent minimum floor for mortgage serviceability and the RBA’s recent rate cut.

However, we shouldn’t expect a ‘V-shaped’ recovery.

There is still a lot of supply coming on-stream in some markets, affordability issues are still impacting first home buyers and credit conditions have tightened and maximum borrowing capacity has fallen. I expect house prices will stop falling later this year, with a slow improvement through 2020.”

3. Are you optimistic, pessimistic or neutral about the economic outlook?

“I am ‘alert but not alarmed’.

The economy has lost significant momentum in a short space of time.

In annualised terms, we were growing at around four per cent this time last year, and now we’re growing at just over one per cent annualised.

Moreover, activity outside of exports and the public sector is very weak.

The key domestic risk is the consumer (that accounts for 60 per cent of economic activity) and the global environment looks much less positive, growth in the year or two ahead will be weaker than in recent years. And, while we have some policy levers to pull – monetary and fiscal policy most obviously – we don’t have the fire power we had when the global financial crisis hit.”

Jeremy Thorpe, Chief Economist, PWC

1. Will there be another interest rate cut?

“It is hard to believe that there will not be at least one more interest rate reduction by the RBA.

The RBA has signalled that it wants additional stimulus to drive employment growth and put upward pressure on wages and prices.

The RBA is also looking to see governments – federal and state – directly stimulate economic activity; any delay in passing the tax cuts at the Commonwealth level will hasten the RBA’s next move.”

2. When will the residential market turn around?

“‘Turn around’ is an optimistic phrase.

We are currently seeing a slowdown in price falls, and I would expect prices to stabilise by Q1 2020.

After that I envisage a period of stagnation or slow growth; this is not a ‘rebound’ environment.”

3. Are you optimistic, pessimistic or neutral about the economic outlook and why?

“Neutral. The economic environment is certainly soft, but I see the RBA and the Australian Government moving to pump-prime economic activity.

There are a number of potential headwinds that neither the RBA nor Australian governments can manage: will the Chinese economy stay strong?

Will the US China trade dispute widen and continue?

Will iron ore prices stay relatively strong? Ultimately, these issues might determine how our economy travels.”

Tim Lawless, Head of Research, CoreLogic

1. Will there be another interest rate cut?

“There will almost certainly be another cut to the cash rate later this year, with some economists calling a further two or event three cuts during 2019.

The latest reads on economic growth are still showing a slowdown in momentum, inflation is still tracking below target, household spending remains sluggish and wages growth remains well below trend.

Although the cash rate is set to move lower, we probably won’t see as much stimulus from lower rates on the housing market.”

2. When will the residential market turn around?

“We are already seeing signs the housing market downturn is easing.

The rate of decline has been easing throughout 2019 and we expect housing values are likely to find a floor over the second half of 2019.

This downturn has seen Sydney and Melbourne housing values fall by the largest amount since at least the 1980s, while the length and magnitude of the Perth and Darwin downturn is also setting new records in these cities.

The silver lining in these markets is that housing affordability has improved substantially and first-time buyers are much more active than they have been in many years.”

3. Are you optimistic, pessimistic or neutral about the economic outlook?

“There is a great deal of uncertainty in the domestic and global economy at the moment which is exacerbated by an escalation in global trade tensions.

While the RBA is doing all it can with monetary policy, we need to see a better fiscal response from the government.

More spending on infrastructure would provide a multi-pronged benefit of capital injection as well as increasing jobs, improving productivity and making affordable housing options more desirable and accessible.”

Elysia Tse, Head of Asia Pacific Research and Strategy, LaSalle Investment Management

1. Will there be another interest rate cut?

“The RBA’s 25 basis point rate cut in early June is unlikely to be sufficient, and the probability of another interest rate cut in 2019 is high for a few reasons.

Forward-looking indicators continue to point to the fact that the Australian economy is losing growth momentum.

Credit growth is unlikely to rebound sharply after the RBA’s first rate cut in 34 months due to the relatively stringent banks’ lending standards.

Tailwinds from the AUD depreciation are expected to be limited primarily due to the market’s expectation of rate cuts in the U.S. Additionally, tepid wage growth, low household savings and high household debt levels are expected to constrain consumer spending.”

2. When will the residential market turn around?

“LaSalle expects the residential market to gradually bottom over the next 12-18 months, barring any exogenous shocks to the Australian economy.

Historically, there was a strong correlation between the growth of housing finance commitments and the growth of residential prices.

The latest April 2019 data showed that the pace of decline in housing finance commitments was decelerating, which could indicate some early signs of residential price bottoming.

Additionally, the RBA’s recent interest rate cut and the potential macro-prudential easing by APRA are expected to be the impetus to put a floor in the decline of housing finance commitments.

However, we do not expect residential prices to rebound sharply post the bottoming, as household balance sheets remain weak due to tepid wage growth, low household savings and high household debt levels.”

3. Are you optimistic, pessimistic or neutral about the economic outlook?

“The economic growth outlook of Australia is expected to be relatively muted in the near term, as the economy continues to face both external and domestic challenges.

Externally, the slowdown in global growth and re-escalation of the U.S.-China trade tensions are expected to weigh on demand for Australian resource exports.

Internally, the Australian economy is faced with the elevated household debt (over 120 per cent of the Australian GDP, the highest among developed Asia Pacific countries), low wage growth, the relatively high unemployment/under-employment rates (when compared to other developed Asia Pacific countries) and falling residential prices.

As a result, the effectiveness of fiscal and monetary stimuli to support growth is likely to be dampened.

The good news is that population in Australia is still growing at a relatively fast pace when compared to most developed countries globally.

Population growth in general is beneficial to economic growth and could partly offset some domestic challenges.”

Shane Oliver, Head of Investment Strategy and Chief Economist, AMP Capital

1. Will there be another interest rate cut?

“We expect interest rates to be cut further.

Growth is likely to remain weaker than the RBA is expecting which will mean an upwards drift in

unemployment threatening even weaker wages growth and inflation.

As such, we expect 0.25 per cent rate cuts in July or August, November and February taking the cash rate down to 0.5 per cent.”

2. When will the residential market turn around?

“The combination of record unit supply, tight credit conditions and depressed home buyer price expectations point to more downwards pressure on home prices in the short term.

But the positive combination of the election result, which removed the threat to negative gearing and the capital gains tax discount that had weighed on investor demand, rate cuts, a relaxation in APRA’s interest rate serviceability test and support for first home buyers should help property prices bottom out by year end and limit price falls to a further four or five per cent in Sydney and Melbourne and two per cent nationally.

But still tight lending conditions and rising unemployment will likely keep property prices flat next year.”

3. Are you optimistic, pessimistic or neutral about the economic outlook?

“Relative to RBA and government forecasts that see growth picking back up to around 2.75 per cent, I am relatively pessimistic and see growth stuck around 1.8 per cent as the housing downturn continues to impact housing construction and consumer spending and constrain growth.

But relative to doomsters who see recession as imminent, I am optimistic and see the combination of strong infrastructure spending, a stabilisation of mining investment after years of falls, solid export demand, monetary easing and fiscal stimulus as being able to keep the Australian economy growing.”

Source: Property Council of Australia

from Property UpdateProperty Update https://propertyupdate.com.au/property-predictions-5-top-economists-give-their-views-on-our-housing-marke/