After a relatively innocuous “correction phase” for Australia’s major city property markets, commentators are tipping we’re on the precipice of a housing boom, with prices expected to rise substantially in 2020.
But will this be another growth cycle of unprecedented, scale tipping proportions like the one we saw at the beginning of the decade? Or will current uncertainty surrounding our general economic climate see things somewhat more contained this time ‘round?
An interest rate free for all
Capping off a year of tricky fiscal policy making due to ongoing concerns surrounding consumer spending (or a lack thereof), alongside shaky jobs and wage growth, the Reserve Bank kept rates on hold at an historic low of 0.75% at its December meeting.
The Board announced that while they will continue to monitor the labour market and global economic conditions, we can anticipate this extended period of low interest rates to continue for some time.
Industry insiders suggest this indefinite access to “cheaper” finance, coupled with a notable absence of alternative regulatory intervention, could create the perfect storm for another significant upswing.
SQM’s managing director, Louis Christopher predicts further falls in the likes of Darwin of up to 5 per cent in 2020, but anticipates an increase in the range of 12 to 17 per cent for Melbourne, with Sydney following close behind in the region of 11 to 16 per cent.
“Strong population growth rates, easier access to housing credit and continuing stability from their local economies will provide the fuel for this new upturn,” he explained.
Christopher contends that these estimated spikes in property values could be leaning more towards the modest side even, should the RBA cut rates further in the new year.
Meanwhile, growth for the likes of Adelaide, Perth, Brisbane, Hobart and Canberra will be more subdued, in the range of 1 to 8 per cent across the board.
However, Christopher warns these current boom conditions will not prevail for as long as that which saw prices rise by around 75 per cent in Sydney and 66 per cent in Melbourne, between 2013 and 2017.
Will regulators crash the party?
The Australian Prudential and Regulatory Authority (APRA), made its might and power over our property markets crystal clear in 2015, when it intervened with a heavy (and effective) hand in the last upswing phase of the cycle.
Christopher contends that the regulator, “currently has more influence on the housing market than the RBA does.”
Indeed, industry insiders are keeping a close eye on APRA, to see how it will respond to this latest market resurgence. Should concerns about the current house price boom grow over coming months, the bounce back could be cut short.
“Australian property buyers may find the cost of lending to be cheap, but if they cannot get a loan from the bank, that obviously hurts the housing market, given most home buyers need finance,” said Christopher.
He paints a scenario that sees APRA potentially intervening mid-way through next year, capping price gains in Sydney and Melbourne at 8 and 9 per cent respectively.
This may not necessarily be a bad thing, given SQM estimates that relative to the prevailing economic conditions of each city, Sydney housing is currently overpriced by 21 per cent and Melbourne by 27 per cent.
The tipping point
The unprecedented rise of Sydney and Melbourne house prices over the last decade, off the back of record low interest rates, is not the only new “normal” investors are acclimating to across Australian property markets, as we seemingly reach a tipping point of sorts.
Across our other capital cities, investors are finding an increasing number of properties that offer gross rental yields above and beyond the current, historically low home lending rates. In other words, assets that would once have been negatively geared, are becoming cash flow positive.
Christopher told the ABC, “I have not seen such a phenomenon in my career. As a result we may see an increase in SMSFs investing into residential property over the course of 2020.”
Interestingly, a rise in SMSF activity was one of the catalysts touted for placing upward pressure on prices during the previous boom. Yet again, adding to the contention that 2020 could be another interesting – and unprecedented – year of exponential growth for Aussie property markets.