Housing on the ‘rebound’: ANZ Research

ANZ senior economist Felicity Emmett and economist Adelaide Timbrell have noted that house prices in Sydney and Melbourne have risen by 3 per cent in the past three months, with the expectation that prices will continue to “rise strongly” nationwide through to the end of 2019.

ANZ Research has now predicted that the annual price growth in Sydney and Melbourne will peak in mid-2020 in “the low double digits”.

On a national level, the economists expect gains to moderate to around 6 per cent in 2020 and 4 per cent in 2021.

Looking at the performance of the housing market in recent months, the economists said that the turnaround has been “remarkable” with the rebound in prices considerably stronger than ANZ Research expected.

According to Ms Emmett and Ms Timbrell, the turnaround can be attributed to “the combination of lower rates and easier access to credit together with increased certainty around housing taxation”.

“Even though there are more rules around mortgages than there were a few years ago, it’s easier to get a mortgage approved now than it was just a few months ago,” they said.

“That change in the barrier to mortgages has amplified the effects of lower interest rates (which make mortgages cheaper to service) and led to sharp increases in new housing finance commitments, by both investors and owner-occupiers.”

They added that ANZ Research had initially thought that the easing of the mortgage serviceability floor would be “at least partly offset by other tightening measures such as the updated Household Expenditure Measure and the introduction of comprehensive credit reporting”, but noted that this has not been the case. 

However, ANZ Research does expect credit conditions to remain tighter than they were pre-royal commission, which will likely “constrain the eventual pick-up in prices”.

“The recent sharp turnaround in prices, though, will ultimately reduce affordability – in Sydney and Melbourne in particular. Average loan sizes for first home buyers are higher than ever,” the economists said.

“The national household debt-to-income ratio is also still very high, at almost double the level of household income. While there is little sign of a pick-up in credit growth as yet, the recent lift in housing finance and likely further house price gains could eventually feed into higher household debt.

“High household debt leaves householders vulnerable. Mortgages are generally affordable now because interest rates are low (Australia’s rate of mortgage arrears is low compared to other countries) but a negative shock driving unemployment higher would be amplified by the impact of high debt,” they concluded.

The ANZ Research predictions counter those made by US economist Harry Dent in a webcast earlier this month, when he dismissed suggestions that the market has turned a corner.

Mr Dent claimed that the property market’s exposure to a weakening Chinese economy would be the primary trigger of the downturn, exacerbated by high household indebtedness, which currently stands at around 120 per cent of GDP.

“China is going to be the epicentre of that, which has much more impact on Australia than the United States for real estate, especially foreign buying and [trade],” he said.

Mr Dent’s sentiment was echoed by DFA’s Martin North, who added that recent rhetoric from the Reserve Bank of Australia (RBA) would fuel the slide.

“The interesting thing of course is that debt is higher than it’s ever been around the world and indeed in Australia, and yet the Reserve Bank here is basically encouraging people to get into the market now to try and support the economy,” Mr North said.

The RBA maintained that the Australian economy has reached a “gentle turning point”, helped by its cuts to the official cash rate.

[Related: FOMO set to strengthen Sydney market]