House prices fell just 0.1 per cent in the month of June, according to Core Logic data. Given only seven months ago in December they were falling as much as 1.3 per cent per month, this is significant news, and indicates a fairly sharp slowing in the rate of decline.
House prices across Sydney, Melbourne and Hobart actually posted gains for June, so it’s quite possible we’ve seen the worst in the Sydney and Melbourne markets. The post-election bounce obviously appears to be continuing. Couple this with recent interest rate cuts by the Reserve Bank, and APRA indicating they will relax interest rate serviceability tests, we have a situation where the stars are aligning to give the housing market a boost and some stabilisation.
Another indicator to support this is the increase in auction rates recently, which were quite weak at the end of last year but have begun to pick up. They are still a long way from booming levels, but they are certainly improving.
Where to from here?
We believe there may be a bit more downside left in house prices, but unlikely to be at significant levels. The outlook is likely to remain constrained for a few reasons. On the one hand the uncertainty around capital gains tax and negative gearing has been removed, along with lending concerns off the back of the Royal Commission.
However, on the other hand, lending standards are still pretty tight, we still have high household debt, and we still have high house price to income ratios, which means the housing environment is still constrained.
The other concern is that unemployment is likely to drift upwards, which may prove to be a constraint, particularly as we come into next year, where we’re expecting to see slow growth in Australia. If unemployment gets too high, then obviously this will have a negative impact on house prices. Having said that, we believe unemployment will probably stay relatively modest rather than getting too bad, however it will still mean house prices are expected to stay relatively flat through 2020.
So, in conclusion, it’s quite possible we’ve seen the bottom to the housing market, with potentially a small way to go yet, however we don’t think this means a return to booming conditions just yet.
Subscribe to 'SMSF News' below to receive my latest articles straight to your inboxShane Oliver, Head of Investment Strategy & Economic and Chief Economist
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