Author – Graeme Salt
This time last year, one economist was predicting Australia would have the world’s biggest house price declines. Yet, 2019 has ended with price growth almost at record peaks and many wondering whether this growth will continue into 2020.
Some economists have gone so far as to argue that next year’s average growth will be 11 per cent – with Sydney and Melbourne as high as 15 per cent.
So what’s ahead?
The combination of lower interest rates, easing lending serviceability buffers and population growth is expected to bring more buyers back into the market.
And with property values rising, sellers (who have generally been on strike) will slowly return to the market increasing stock levels.
However the pace of property price recovery may be limited because, while serviceability thresholds for most borrowers has been reduced, lenders are expected to maintain their more conservative approach towards assessing borrower income and expenses.
Below is a summary of what many economists are predicting for 2020; it’s by no means a comprehensive list. However, all economists are positive about property for the next 12 months.
Supply and demand
Continued strong population growth will be another key driver supporting our property markets.
Around 300,000 people new people call Australia home every year and most of these people have jobs and are at household formation age.
At the same time, new dwelling building approvals fell by 19 per cent in 2018/19 and the forecast number of dwelling completions are likely to fall to 163,500 by 2020/21, which is well below underlying demand.
Can you get a mortgage?
The availability of finance will be the biggest stumbling block.
We at Origin Finance have noted that, in different ways, banks are starting to become more generous with their lending policies. Part of this is due to the Australian Prudential Regulation Authority (APRA) having relaxed lending standards, partly it’s because the banking Royal Commission is now in lenders’ rear-view mirror
This has meant more people are being approved for home loans, more people are coming to open for inspections and vendors who have sat on the sideline waiting for the market to turn are gaining confidence as auction clearance rates are rising (although on low numbers).
The most recent finance figures released in October 2019 show a clear lift in finance activity since mid-year with a more even spread of finance approvals to owner occupiers and investors.
But we don’t believe lenders will fully open the taps for mortgages like in the last boom and they are now very different in how they assess applications – so it’s best to chat to your Origin broker as to the most appropriate lender.
Will you experience property growth?
While economists across-the-board predict growth in 2020. They also recognise that it won’t go on in perpetuity, nor will it be across all states
As an example, Domain’s economist Trent Wiltshire forecasts that house prices are likely to stabilise in Australia’s capital cities by the end of the year and will then exhibit moderate growth in 2020. 2021 is likely to see a plateau in prices. But that these growth rates will vary by location (and units are unlikely to experience as high growth as houses)
|2020 (annual change)|
|Australia (combined capital cities)||2% to 4%|
|Sydney||3% to 5%|
|Melbourne||1% to 3%|
|Brisbane||3% to 5%|
|Perth||0% to 2%|
|Adelaide||1% to 3%|
|Hobart||2% to 4%|
|Canberra||4% to 6%|
The doomsayers were wrong about property in 2019 and while the optimists could be wrong about 2020, my years of experience tell me that it will be a positive year.
If you want to chat more about a property purchase and, critically, whether a bank will lend to you, please contact your Origin broker.
Graeme Salt is a leader at Origin Finance. For a no obligations consultation on your home loan needs, please contact him on 1300 67 67.