Housing affordability could get a boost in coming months, with the Brisbane and possibly Perth markets likely to join Sydney, Melbourne and Canberra in a downturn that is expected to receive only a modest lift from interest rate cuts this year, economists say.
The pressures from nearly three years of high interest rates and soaring costs of living have prompted more home owners to sell, resulting in a substantial rise in available stock in Sydney and Melbourne, and also in Perth and Brisbane.
Improved affordability in the two resource-dependent cities could be a boost to the Labor government’s hopes of winning sufficient votes in WA and Queensland at the upcoming federal election to remain in power.
“It’s likely Brisbane’s housing values would be lower by the time of the [federal] election because of the rapidly slowing price growth due to poor affordability,” AMP chief economist Shane Oliver said.
“We know that at some point, lower interest rates will probably provide some support and turn that downward momentum around. The question is whether that occurs quickly enough to stop them going negative. My sense is that it may not, and Brisbane could drift lower.”
Analysis by property data company CoreLogic shows the value of the average house in Brisbane edged up 1.2 per cent in the three months to January, a sharp decline from the peak quarterly growth of 4.2 per cent in May last year.
Perth values gained just 1 per cent, the slowest quarterly rise in two years, turning the city from the country’s top-performing property market over the past two years to a laggard behind Adelaide and Brisbane.
Adelaide’s buoyant housing market has taken the lead after clocking 1.8 per cent gain in the past three months. Darwin rose 1.7 per cent, but Sydney, Melbourne, Hobart and Canberra fell between 0.5 per cent and 2 per cent.
Long-term supply and demand dynamics in Australia’s housing markets remain largely unchanged. Despite a slowdown in overseas migration, a housing shortfall of at least 200,000 dwellings nationwide is expected to keep upward pressure on prices over the medium to long term.
Affordability constraints
But in the short term, borrowing capacity has been slashed by 25 per cent since rates started rising, cutting the amount people can afford to pay for homes, and even two or more potential rate cuts this year would not be enough to ignite another strong increase in house prices, CoreLogic research director Tim Lawless said.
“We still have the ongoing headwinds of affordability constraints, normalising population growth and generally soft economic conditions to contend with,” Mr Lawless said.
“Lower mortgage rates and a subsequent lift in borrowing capacity, as well as an undersupply of newly built housing, could spark a rebound in price growth, but they are unlikely to be enough to set off a significant growth in the coming year.”
That is not what vendors such as Jess Fitzgerald hope to hear. Ms Fitzgerald is counting on a lift in sentiment to secure a high price for her four-bedroom house at 1 Symonds Road in Gold Coast’s Burleigh Heads at auction next Friday.
“It’s a good time to sell because there’s still a shortage of quality property like ours, and buyer demand seems to be rising in anticipation of a rate cut,” she said.
“Since we started open homes a few weeks ago, we’ve been getting 30 to 40 groups coming through, which tells me, there’s quite a bit of pent-up demand out there.”
But Mr Lawless said any decline in the two resource-economy cities of Brisbane and Perth would not be severe.
“Both markets are losing momentum quite visibly and if the trend continues, it does look like these markets are flattening out and maybe heading for a subtle downturn in the coming months,” he said.
“But it’s hard to see both these markets starting to move backwards with any magnitude given they still have very strong rates of population growth. And while listings picked up by 6.2 per cent in Perth and lifted by 1.4 per cent in Brisbane compared to a year ago, they are still lower than the previous five-year average.”
‘Back towards balance’
Some economists do expect a stronger boost to prices.
SQM Research managing director Louis Christopher said the combination of a February rate cut and increase in population of 500,000 or more annually could trigger another double-digit growth period across the combined capital cities.
“If we were to see a cut in interest rates in February, the housing market across all capital cities will post a recovery of various magnitudes, but mainly Sydney and Melbourne do go into recovery mode,” he said.
“In this scenario, the capital city average housing prices would rise somewhere between 6 per cent to 10 per cent, led by Perth which, we believe, would rise somewhere between 15 and 20 per cent.
“This recovery could show up as early as February through higher auction clearance rates with prices starting to rise in the June quarter.”
HSBC chief economist Paul Bloxham said the slowdown in population growth and rise in both new and existing supply could neutralise the boost from lower rates, resulting in a flat market this year.
“With population growth slowing, while housing supply is starting to lift a little as construction picks up and more sellers come to market, that should move the housing market back towards balance and see price growth cool,” Mr Bloxham said.
In the past month, home values in Perth rose by 0.4 per cent, Brisbane lifted by 0.3 per cent, and Adelaide rose by 0.7 per cent, CoreLogic’s data shows.
Sydney and Melbourne continued to fall, but by a lesser 0.4 per cent and 0.6 per cent respectively from December. Canberra fell by 0.5 per cent, Hobart values were flat, while Darwin gained 0.6 per cent. Across the combined capital cities, values fell by 0.2 per cent, and nationally, prices were flat.
In the near term, the boost from lower interest rates could help the weaker housing markets of Sydney and Melbourne avoid further declines, AMP’s Dr Oliver said.
“It’s possible that the rate cut could trigger a recovery in Melbourne as values have been falling for some time, and could also shorten Sydney’s downswing, although prices could still fall for another month,” he said.
“But because interest rates are not going to fall to their previous lows, and only improve borrowing capacity slightly, buyers will still struggle with poor affordability.”
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