Although Australia's housing market is recovering well, particularly in Sydney and Melbourne, the coronavirus outbreak and additional potential macroprudential measures could have further implications.
That is the view of Doron Peleg, chief executive of research house Riskwise, who says the implications of these events on the economy are yet to be fully understood despite house prices remaining on track to push the national median above its 2017 peak in a matter of weeks.
“Economic growth has been poor, and this is further compounded by the recent bushfires and the COVID-19 outbreak although their significant impact is still to be fully determined.
“The recent bushfires will have a major short-term impact on property prices in affected areas and this will increase the risk in many regional areas given the possibility of future occurrences.”
Following price declines over the past two years, property prices have surged over the last eight months across most capitals after two immediate RBA cash rate cuts and expectations of prolonged low interest rate environment.
Importantly, Peleg says, the high likelihood of APRA reintroducing macroprudential measures to stem material growth in asset prices could mean amplified risk to the financial system.
Peleg said low interest rates and an improved job market in NSW were continuing to drive dwelling prices with the market shifting from a buyers’ market to a sellers’ one.
“It is likely that it will deliver double digit price increases and is likely to reach a new peak within the next six months.”
“Housing affordability is, therefore, further deteriorating as wage growth is far lower than the expected price increases.”
As a knock on effect, housing supply imbalances are also beginning to effect the market with Sydney, currently experiencing an undersupply of family-suitable properties, particularly in high-demand areas.
High population and high demand in both cities were creating the “systematic issue” with no easy solution Riskwise warned.
Similarly to Sydney, Peleg said Melbourne would likely reach a new peak within the next six months.
“However, the flow-on effect is that housing affordability is highly likely to materially deteriorate given the low wage growth.”
“This also means the undersupply of family-suitable properties will continue to be a major issue, relative to demand driven by population increases.”
Melbourne’s population is projected to grow by more than 120,000 per year in the next few years.
In addition, apartment construction activity will slow in 2020 and interest rates will remain low, both factors which will drive prices higher.
“Melbourne faces the same major imbalances, between undersupply of family-suitable properties and high level of supply of investment properties, as Sydney.”
Despite this, Melbourne has seen a rapid improvement in buyer confidence with recent auction clearance rates hitting 77.1 per cent for February, with strong price increases making it a strong sellers' market.
Peleg said unemployment, under-employment and spare capacity in Queensland's labour market had noticeably increased in January 2020 and was unlikely to substantially improve in the near future.
The unemployment rate grew from 5.7 per cent in December 2019 to 6.3 per cent in January 2020, with regional areas carrying a higher level of risk.
“The risk associated with the Queensland market should be monitored closely at the SA4 level, as deteriorating employment conditions are likely to have a significant negative impact on dwelling prices.”
Analysts have tipped house prices in Adelaide to likely add 3 per cent this year and 2 to 4 per cent next year, with units to lift at the same pace, following an increase in buyer confidence and auction clearance rates.
However, the states’s unemployment rate is again the highest in the country, at 6.2 per cent, according to the latest figures, released by the Australian Bureau of Statistics.
After reaching a record high of 855,700 jobs in June, SA’s workforce slumped to 847,600 in December. In the month of December alone, 1400 more jobs were lost than created.
“The labour market is a key factor in South Australia’s price growth projections and while it has improved in the past couple of years, it is still weak.”
“While serviceability measures have improved due to the RBA’s interest rate cuts, the soft labour market and the relatively high unemployment rate increases the risk of credit defaults.”
While buyer confidence has improved, particularly in Perth and housing finance has been showing signs of improvement, overall, economic activity remains well below the 10-year average and the effective unemployment is still significantly above the 10-year benchmark.
“Due to the weakness of the labour market, Western Australia’s annual population growth of 1 per cent is the third lowest nationally.”
“As a result, the housing market, particularly units, has experienced continued weakness in recent years.”
Affordability issues and a material increase in unemployment during January, with preferred alternative investments in Melbourne, have made the Apple Isle less resilient.
The property market continues to experience decelerated price growth despite low supply of dwellings, low median prices, a tighter rental market and strong rental returns.
In the Northern Territory, much of the state's negative capital growth in recent years is due to population issues.
“While dwelling supply in relation to population growth is low and dwellings are very affordable, the low demand for housing makes the Northern Territory a risky area especially given the low level of private investment that is significantly below the growth levels during the mining boom.”
The ACT's extremely strong job market, with only 3 per cent unemployment rate, has ensured demand for dwellings has remained solid.
“Houses in the ACT are solid performers, but new units present higher risk.”
