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AMP’s chief economist and head of investment strategy Shane Oliver has said the combination of rising rent and population growth has resulted in the property market shifting from a slide to a rebound.
Speaking at S&P Global Ratings’ Australian Property Spotlight Seminar 2023 in Sydney on Tuesday (25 July), Mr Oliver said those waiting for the property market and its prices to slide are now looking to jump in before it is too late, as rent hikes continue to bite and the population increase adds further pressure to supply.
Reflecting on house prices, Mr Oliver said: “Suddenly, from February onwards, they started to rebound and I think that was primarily due to population growth.
“The ‘FOMO phenomenon’ is alive and well. Lots of people are sitting on the sidelines waiting for lower prices, they’re thinking: ‘We’ve seen them lower their prices’, and now we’ve got this huge influx of people to Australia and in the meantime, the rental markets are really tight.
“A Millennial or someone thinks they need to get in now, instead of paying this massive rental increase, so suddenly the market goes from sliding to a rebound and potentially going into undersupply.”
He added that, despite the reduction in population growth during the pandemic, the number of people per household dropped across the nation, offsetting the reduced number of immigrants.
“Through the pandemic years, the number of people per household in Australia dropped below 2.5 (or thereabouts) and the RBA reckoned that offset the lack of immigrants, that’s why the markets remained tight and the rental markets remain tight even though you have these immigrants coming in,” Mr Oliver said.
“So now you’ve got this supply shortfall that’s given us a rebound.
“You went from hardly any immigrants to 400,000 potentially this year, maybe more population growth, pushing it above 2 per cent at a time with very tight rental markets.”
According to AMP’s chief economist, Australia should have been building an extra 50,000 houses per annum from 2005 onwards and that even with the unit-building boom in 2015, the property market was back into “a massive undersupply again”.
Furthermore, Mr Oliver said the increased interest rates were also reflected in property auction clearance results slowing, with an ‘unseasonable rise in listings in June and July’, which he said “may be a sign that we’re seeing increased distress selling”.
The chief economist suggested: “We really need interest rates to start falling quickly to take the pressure off here and we may not see that; they may stay up for a little while before they start coming down … If they do come down, they may stay at higher levels,” Mr Oliver said.
Mr Oliver’s comments on the surprising uptick in home buying demand and a resulting uptick in house prices echoed forecasts made by National Australia Bank (NAB) recently, as it revised up its house price forecasts for this year (and next) due to high demand.
The major bank’s new outlook for property prices suggests house prices will increase by 4.7 per cent this year and around 5 per cent next year.
The forecast was based on NAB’s expectation that the RBA will lift the cash rate to a peak of 4.6 per cent by September and keep it on hold until 2024, before cutting in 2025.
[Related: NAB revises up house price forecasts]
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