Following a year of two halves, 2020 could be a strong one for property investors if they look at the data, an industry expert has suggested.
In a recent episode of The Smart Property Investment Show podcast, CoreLogic head of research Eliza Owen discussed the macro factors driving the Australian property market.
“I think looking at economic fundamentals of areas and considering not just the rise in employment or the growth of a particular industry, but really thinking about what kind of industry are we looking at, what is the likelihood that it’s going to have long-term gains for an area,” Ms Owen said.
The data shows that a 1 per cent reduction in the cash rate leads to an 8 per cent increase over the following two years.
With the Reserve Bank previously reducing rates by 0.75 per cent in 2019, and further rate cuts expected in 2020, demand for property in Australia will increase due to cheap loans.
“Off the back of that, we’d expect an increase in property prices as a result,” Ms Owen said.
Is it a bubble?
As Australia’s market continues to show strong signs of growth in 2020, commentary around it becoming unsustainable continues to rise.
However, while Sydney’s housing market has shown signs of being a bubble in the past, Ms Owen suggested regulators have stopped this.
“I think it’s fair to say we did kind of have bubble conditions specifically in the house segment of the Sydney market. And then, a sort of drop of about 17 per cent.”
“It is back up but not quite to where it was at the peak of its cycle. And a lot of that was because there was a high concentration of investment in that market, but also a high concentration of potentially risky lending, namely in the form of high levels of interest-only loans,” she explained.
“The regulators stepped in accordingly to limit the level of interest-only lending that was going out.”
“What’s an important thing to remember is that the property market isn’t operating in this vacuum, it’s operating in an environment where government bodies and statutory authorities can see what is happening and can intervene to make sure that things don’t get too speculative or too risky,” Ms Owen concluded.