2019: Property Won’t Know if it’s Arthur or Martha

Graeme Salt Broker 2 Leave a Comment

Author – Graeme Salt

Far from plain sailing but property can benefit from headwinds

Next year Australian property will be hit by multiple forces – some for the good, some for the bad.

But, by the end of 2019, there will be greater optimism in property than there is now.

Here’s What Will Push the Australian Market Down

Over the last 12 months national dwelling values have fallen by 4.1 per cent which is their largest annual fall since December 2011. As the year progressed, the rate of value decline got more rapid, particularly within Sydney and Melbourne.

Unlike previous downturns, this market decline has been primarily due to regulatory decisions; the Australian Prudential Regulation Authority (APRA) has obliged lenders to be way more cautious on to whom they lend and how much.  As a result, there is much less capital in the market.

The first half of the years will see more governmental downward pressure impacting house prices.

In February, the Hayne Royal Commission into banking will report to the Treasurer – probably recommending an overhaul of the banking system.

Then, we have a Federal Election.  Assuming an ALP victory, we are likely to see new policies that will have negative impacts on property prices.

And it’s not just regulatory changes that will add downward pressure on property.  In a declining market, any potential buyer will hold off buying expecting prices to be even lower in a few months’ time. 

Just the expectation that prices will drop forces them to drop further.

But even though we’ve got this correction now, house prices in Sydney are still around 40 per cent higher than they were in 2012-13. 

Here’s What Will Push the Market Up

One reason that house prices are on firm ground is that APRA started its macro-prudential regulation on lenders in December 2014.  So, many of the recent beneficiaries of the boom have financed places when it was already tough to get a loan.  

If there were any lax lending policies that was some time ago.

In fact, APRA recently removed the cap it imposed on lending to investors.  There is also anecdotal evidence that the Reserve Bank is now encouraging the banks to be more generous in their lending policies. 

Any relaxation won’t happen till the banks have taken their medicine from the Royal Commission.  But relax lending standard, eventually, they will do.

Here’s Why, in 12 Months, We Will Be More Optimistic

Unlike previous housing market slowdowns which have typically been driven by an economic slowdown (such as the last recession or the GFC) or higher mortgage rates, this slowdown has been manufactured via tighter credit conditions.

Over the course of 2019 we will see these conditions relax slightly.  While interest rates and the economy are benign – and may even become stimulatory.

This week the Australian Bureau of Statistics reported an improvement in the underutilisation of the workforce (ie more people have more work to do).

The improvement has been driven by New South Wales (6.3 per cent) and Victoria (6.5 per cent), where the jobs markets have now picked up to levels consistent with stronger wages growth. 

Wage growth is normally a precursor to property price growth.

The other side of the equation is also getting more benign for property.  Few experts predict a rate rise soon and some, such as AMP’s Shane Oliver, are even predicting a rate cut in 2019.

Undoubtedly, the tsunami of new apartments coming on line plus restrictions on foreign investors mean the boom days are long gone, but we are far from wrist-slashing territory too.

Last year 262,500 people migrated to Australia.  Despite the headlines about property crises we forget that just over a quarter of a million new people call Australia home every year.

And there is still plenty of stuff happening that will stimulate demand for property.  The massive infrastructure spends in each state boosts wages, meaning Australians can spend more on their housing.

The Roy Morgan Wealth Report calculated that the average Australian’s personal assets are now worth 7.9 times average debts, compared with 7.2 times debts a decade ago. 

Roughly half Australia’s personal wealth is held in the form of housing (51.9 per cent).  In a decade’s time many of us will see 2018’s property prices for what they are – a correction not a collapse.

For a no-obligations consultation on your property needs, please contact Graeme on 1300 67 677

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