By Vivek Mishra
BENGALURU (Reuters) – Australia’s housing market revival will carry on into 2020 thanks to a series of interest rate cuts from the Reserve Bank of Australia this year and another expected next year, according to a Reuters poll of property market analysts.
Respondents were, however, skeptical about how long the rebound would last, with most saying it would only be a year before the rate of house price inflation cooled off again.
The latest Reuters poll of 13 property analysts taken Nov. 6-20 showed average home prices would rise 5.0% nationally next year, nearly double the rate predicted just three months ago, and then slowing to 4.5% in 2021.
Six of 10 analysts who answered an additional question said further interest rate cuts to the record-low 0.75% benchmark cash rate after three RBA cuts already this year would stimulate Australia’s housing market activity and prices significantly.
“Oh, how the story has changed. Six months ago, the key debate among many Australian housing market observers was how much further prices could fall,” noted Paul Bloxham, chief economist at HSBC in Sydney.
“We expect housing prices to continue to rise in 2020, underpinned by mortgage rates, which are likely to stay low for a considerable period of time.”
The RBA is expected to ease once more in 2020 in its bid to boost a slowing economy that has marked nearly three decades of uninterrupted expansion.
All but one respondent in the latest Reuters poll said that Australia’s housing market activity is more likely to rebound over the coming 12 months than decline again.
“Households have responded strongly to regulatory easing and rate cuts. Strong pricing growth particularly in Sydney and Melbourne is likely over the next year,” noted Adelaide Timbrell, economist at ANZ.
A regional breakdown of the poll data showed Sydney and Melbourne, Australia’s two most populous cities which contribute about 43% to the country’s gross domestic product, would lead property price growth in 2020.
House prices in Sydney and Melbourne were forecast to rise 7.7% and 7.4% in 2020, respectively. In Brisbane and Adelaide they were expected to rise 2-3% next year and in 2021.
But analysts were skeptical about how long the sudden revival in Australia’s property market would last, particularly given that the broader economy is still not showing many signs of improvement.
Australia’s wage price index rose 0.5% in the third quarter and consumer sentiment held below average in November, suggesting that recent monetary policy stimulus has failed to spur household demand.
In a Reuters poll taken last month, economists forecast the Australia economic growth to slow to 1.9% this year, the weakest rate since the 1990-1991 recession, followed by 2.5% in 2020 and 2021.
“A strong rebound in household consumption will remain elusive given that the outlook is for income growth to remain subdued in the coming quarters,” noted Katrina Ell, economist at Moody’s Analytics.
China, Australia’s largest offshore property investor, has imposed strict capital controls amid the ongoing trade conflict with the United States. Analysts said that could affect the sustainability of the recent house price recovery.
“Low foreign demand for housing and a weaker economic environment should limit home price growth. Our view is of national home price growth of around 5% after this initial bounce has run its course,” said Diana Mousina, senior economist at AMP Capital in Sydney.
On an affordability scale of 1 to 10, where 1 is extremely cheap and 10 is extremely expensive, Australia house prices were rated 7 by respondents in the Reuters poll.
(Polling and analysis by Vivek Mishra; Editing by Ross Finley and Alexandra Hudson) OLUSECON Reuters US Online Report Economy 20191122T000819+0000