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Analysts brush off return to ‘boom time conditions’

Analysts brush off return to ‘boom time conditions’

by Charbel Kadib | September 12, 2019 | 1 minute read

The rebound in housing market conditions will be “far more constrained” than recent data has suggested, according to analysts.

Shane Oliver
September 12, 2019

The latest property price data from CoreLogic also revealed that national home values increased by 0.8 per cent in August – the first monthly increase since April 2017.

The national increase was driven by a 1.6 per cent rise in Sydney and a 1.4 per cent rise in Melbourne.

Home values have increased over three consecutive months in Sydney and Melbourne, rising by a cumulative 1.9 per cent and 1.8 per cent, respectively.

The rise in home values has coincided with a sustained nationwide increase in auction clearance rates, which have lingered above 70 per cent for the past three weeks.   

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The pick-up in sentiment has followed the Reserve Bank of Australia’s (RBA) back-to-back rate cuts in June and July, the federal government’s tax deductions, and changes to mortgage lending guidance.   

However, according to chief economist at AMP Capital Shane Oliver, the improvement in sentiment won’t trigger a price boom.

“Our base case is that house price gains will be far more constrained than the 10-15 per cent [increase] implied by current auction clearance rates,” he said.

Mr Oliver said he expects tighter lending conditions and subdued economic activity to weigh on price growth.

“Compared to past cycles, debt to income ratios are much higher, bank lending standards are tighter, the supply of units has surged with more to come, and this has already pushed Sydney’s rental vacancy rate above normal levels and unemployment is likely to drift up as economic growth remains soft.

“[We] don’t expect to see a return to boom time conditions and see constrained gains through 2020 [of] around 5 per cent.”  

Mr Oliver’s sentiment was shared by Erin Kitson, director of structured finance at global ratings agency S&P, who said she also expects economic conditions to serve as a “handbrake” on price growth.  

“A lot of the positive announcements recently, particularly in rate cuts and the removal of the debt serviceability floor and uncertainty around property-related taxes will probably help on the demand side and particularly on access to finance,” she said.

“However, a more cautious household sector will still constrain the extent to which these factors help mount a recovery.

“We still have weak wage growth and a high level of household indebtedness, [so] I think that will act as a bit of a handbrake on property prices taking off again any time soon.”

About the author

Emma Ryan

Emma Ryan

Emma Ryan is the deputy head of editorial at Momentum Media and editor of Smart Property Investment.

Emma has worked for Momentum Media since 2015, and has since been responsible for breaking some of the biggest stories in corporate Australia, including across the legal, mortgages, real estate and wealth industries. In addition, Emma has launched several additional sub-brands and events, driven by a passion to deliver quality and timely content to audiences through multiple platforms.

Email Emma on: [email protected]com.au

Analysts brush off return to ‘boom time conditions’
Shane Oliver
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