Australia’s house prices have rebounded by up to $3000 a week
The housing slump could be over with experts now forecasting increases to house prices over the next few years.
Charis Chang@CharisChang2 news.com.auOCTOBER 14, 20193:56PM
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Three key reasons the housing crash is over, according to Commsec's Tom Piotrowski.
Property prices are on the rise in Melbourne and Sydney with average dwelling prices rebounding by about $3000 per week.
Deloitte Access Economics’ latest Business Outlook released today noted average dwelling prices in Sydney had risen by about $3000 per week in September. Melbourne experienced a bounce of about $2500 a week.
Deloitte is predicting “more to come”, noting that housing-related lending has started to climb and auction clearance rates were returning to boomtime levels.
It’s been a stunning turnaround for the market after prices fell in both cities by about $2000 a week from late 2018 to early 2019.
“The rebound in Sydney’s housing prices is welcome, but it’s also bad news,” the report said. “It will help NSW by boosting retail and housing construction but down the track the return towards diabolical rates of housing affordability will bite into NSW’s economic and population growth.”
Deloitte noted that “Australia needs a renewed housing price bubble like it needs a hole in the head” with the recent rebound “best understood as a hair of the dog that bit us in the first place”.
Property prices in Sydney rose by about $3000 a week in September. Picture: James Gourley/The Sunday TelegraphSource:News Corp Australia
Luckily, Deloitte doesn’t think the market will flip straight back into “bubble mode”.
“Some of the current rebound in housing prices is happening simply because the mood among buyers has recovered faster than sellers have rejoined the market,” the report said.
Despite auction clearance rates bouncing so high they would in recent years have led to an implied 10 per cent jump in Sydney and Melbourne house prices, Deloitte doesn’t think there will be the same increase this time.
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The previous housing boom lasted about six years, although cities like Darwin and Perth had a much shorter cycle. Sydney was the main beneficiary, with prices rising by 70 per cent between November 2011 and 2017, according to realestate.com.au.
Since then prices have dropped by about 12 per cent, but the market is now showing signs of recovery.
Even though a rapid increase in house prices won’t be good in the long term for the economy, there are some advantages.
Deloitte believes it will encourage a “modest recovery” in the retail sector as consumers feel reassured about their wealth.
“The largest single contributor to the slowdown in the Australian economy has been a weakening in the pulse among shoppers, and the largest single contributor to that consumer caution was the nasty falls in house prices from late 2018 through the opening months of 2019,” the report said.
Deloitte suggests the housing downturn in Australia alongside the drought have been the two main factors in the slowdown in the economy, with global factors not as influential as many believe.
In fact, it says Australia has been a big winner from the world downturn.
Another housing boom won’t be a good thing for Australia. Picture: Ellen SmithSource:News Corp Australia
This is because countries like China have responded to its own slowdown by pumping out stimulus that has encouraged construction. This has helped Australia because it supplies resources like coking coal and iron ore that are required to make steel.
“People think that global negatives have been monstering Australia’s economy,” the report said. “Yet it’s the opposite that’s true: A global gift of higher iron ore and coal prices has limited the damage from drought and a housing downturn.”
The report noted the slowdown in Australia’s economy in recent times had been largely homegrown.
The report suggested the drought had directly stripped about $5 billion out of Australian incomes in the past year. This doesn’t include the knock-on effects to other sectors that also rely on the agriculture industry, including small shops in regional towns and the trucking industry.
The Federal Government is now facing pressure from experts including the Reserve Bank of Australia to provide stimulus in the economy through things like infrastructure spending.
So far the Government is resisting this pressure, which Deloitte says “isn’t necessarily a bad thing”.
The Reserve Bank has been pushing for stimulus because it believes Australia needs to get unemployment down to 4.5 per cent so that wages and prices improve quicker.
But Deloitte notes this would be spending a lot of Australia’s “rainy day fund”.
“The more ‘recession insurance’ that Australia cashes in now, the less that we’d have available in the event of a crisis,” the report states.
It all comes down to whether you believe there will be a recession over the next five years.
Deloitte believes holding on to the stimulus could prove handy if there was a crisis down the track, but if there was no later downturn it would have been better to introduce the stimulus now to help 200,000 extra people into jobs and boost wages.
“That’s the debate Australia should be having,” the report said.
However, it suggests there is “no right answer” to this dilemma.
“As cautious types, Deloitte Access Economics isn’t all that unhappy with how policy has been and is unfolding to date,” the report continued. @charischang2 | [email protected]
