Housing market headed for recovery?

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Some analysts and property professionals presume that Sydney and Melbourne property markets could bottom out within 12 months.

The housing market had been showing some early signs of improvement prior to the election. Consumer sentiment was tracking upwards. In addition, auction clearance rates climbed, while the pace of house-price drops slowed, according to HSBC’s chief economist Paul Bloxham.

“We’re of the view the housing market will stabilise in the second half of this year,” he told Guardian Australia.

The re-elected Coalition government recently announced that it is lowering the required home-loan deposit from about 20% to 5% for qualified borrowers. Labor’s loss in the national polls, meanwhile, meant that the proposed negative gearing changes will not proceed.  Bloxham believes that these two factors will play a part in the market recovery.

Bloxham said strong population growth in Victoria would prompt a faster turn of momentum in the Melbourne property market. “In contrast, Sydney has got a lot of supply coming on stream in the apartment market so that might take longer for it to work through,” he told Guardian Australia.

JP Morgan Senior Economist Ben Jarman, on the other hand, forecasts that things are going to be soft for a while.

“Our view is that house prices are going to keep falling. The policy supports coming through are helpful but, at the end of the day, they are in response to data which has weakened more than authorities thought,” he told Guardian Australia. “We don’t think credit availability is going to change meaningfully; that seems to have been what started this whole unwind of house prices.”

The investment bank is predicting a 5% decline in property prices this year, but Jarman anticipates a levelling out by the second half of 2020.

According to CoreLogic’s head of research, Cameron Kusher, the market will likely bottom out in 2020, with overall drops of 20% in Sydney and Melbourne.

“But now, if these changes do go ahead … we might actually find the market bottoms earlier – maybe towards the end of this year – and potentially next year we’ll get some slight growth,” Kusher told Guardian Australia. “I certainly don’t think it’s a big enough change to lead to rapid acceleration in prices, but I certainly think it will bring some stability.”

APRA has recently proposed removing its guidance that authorised deposit-taking institutions (ADIs) should assess whether borrowers can afford their repayment obligations using a minimum interest rate of at least 7%.

The bank regulator’s changes would potentially help Melbourne and Sydney recover because they had been hit hardest by the serviceability rules, according to Brendan Coates, a Grattan Institute fellow.

 “It was becoming untenable to be using a 7% interest rate benchmark when mortgage rates were at less than 4% and likely to fall,” he told Guardian Australia. “Expectations are a big driver of prices, and prices have been falling for a while, and people will be cautious to get back into the market before they know it’s coming to an end.”

Finally, Chris Eves, an RMIT property expert, said he was anticipating a property price turnaround in at least six months.

Adelaide, Darwin, and Perth are not going to kick back as quickly as the eastern [seaboard] but some of those larger regional centres like Geelong in Victoria will [improve] rather quickly,” he told Guardian Australia.

 

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