February housing outlook

By property expert Cameron Kusher
February 2020

January brings a short pause amid continued property price growth

January is a typically quiet month for the housing market and the latest data indicates this fact with most capital cities seeing minimal changes in property prices over the month. In fact, all capital cities recorded a monthly change in prices of between -0.1% and +0.1% except for Hobart, which recorded a +0.4% increase. Despite the pause in price changes over the past month, prices have recorded moderate increases over the past three months in Sydney, Melbourne, Brisbane, Hobart and Canberra, while prices were unchanged in Adelaide and have recorded slight falls in Perth and Darwin. Overall, the broad trend in which property prices have been increasing at a steady pace since May 2019 continues and we will get a better indication of the market momentum over the coming months as transaction activity lifts.

The market remains in the situation whereby an increasing number of people are visiting realestate.com.au looking for properties, but there remains a dearth of housing stock being listed for sale. The good news is that new listings appear to have increased dramatically in January 2020; however, they generally remain much lower than they were a year ago. Over the next few months, what happens with listings will be key for the housing market. I would suspect that given prices have been rising since May 2019, there is now enough evidence for homeowners to have confidence to list their properties for sale and we will see a substantial rise in new listings over the coming months. Depending on the magnitude of any increase in supply of stock for sale, this could lead to a slowing of price growth as some of the urgency to purchase is removed from the market.

January 2020 has also seen the commencement of the Federal Government’s First Home Loan Deposit Scheme. The scheme, which allows first home buyers within certain income ranges buying properties up to certain price points to buy with as little as a 5% deposit and avoid LMI, has seemingly been very popular. The scheme was set to have 10,000 places available between January 2020 and June 2020 with another 10,000 spaces made available next year. In the first month of operation, 5,486 of the 10,000 spaces were taken. At the time of announcing the scheme, Prime Minister Scott Morrison said that if demand was sufficient, more spaces will be made available; it will be interesting to see whether that happens.

Building approvals data indicates that the decline in new approvals may have found a floor. The latest data for December 2019 found approvals fell -0.2% over the month; however, they are now 13.7% higher than their recent low.

Housing finance data shows that demand for mortgages is continuing to climb with owner-occupiers and first home buyers the main drivers of this growth; however, there has also been a moderate lift in lending to investors. The latest data to November 2019 shows that owner-occupier housing finance commitments have increased by 20.5% from their May 2019 lows and investor commitments are up 10.9% over the same timeframe. Mortgage demand from first home buyers was lifting prior to May 2019, with the monthly value of lending up 30.1% from its recent low in January 2019.

While there has been some improvement in mortgage demand, there hasn’t been an equally significant rise in retail trade. The latest data to December 2019 showed retail trade fell -0.55% over the month; however, that was following a 1.0% increase in November thanks to Black Friday sales. Over the final quarter of 2019, retail trade increased 0.6% compared to 0.7% over the previous quarter. The year-on-year change in retail trade was 2.7% in December 2019.

The national unemployment rate was recorded at 5.1% in December 2019. Unemployment has been trending lower and the 5.1% in December 2019 was the lowest rate since March 2019. While unemployment is falling, the participation rate remains at near-record highs; however, the rate of employment growth has slowed slightly compared to 2018, and part-time employment growth remains much greater than growth in full-time employment.

At their February board meeting, the Reserve Bank Board decided to keep official interest rates on hold at 0.75%. The RBA made note of the three 25 basis-point cuts over the past year and the fact that cuts can have a long and variable lag before they impact the economy. They noted that an extended period of low interest rates will be required in order to hit their inflation and employment targets. They also noted that they are prepared to ease monetary policy further should it be required to support sustainable economic growth, full employment and the achievement of their inflation target.

Over the few coming months, I would expect that property prices will continue to increase at a moderate pace across most capital cities. Sydney, Melbourne and Hobart will likely continue to see stronger growth than elsewhere. I would also expect search activity on realestate.com.au to continue to climb as people get into the swing of 2020 and get more serious about buying a new home. The wild card remains what will happen with property listings. While I would expect the number of property listings to show a meaningful lift over the coming months, it will be important to watch (assuming this occurs) how the supply of housing stock for sale matches with the demand for housing. If they are in relative equilibrium it could lead to slower price growth going forward; if it remains insufficient in comparison to demand, then price growth may accelerate further over the coming month.

 

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