ANZ says Australia's housing market downturn has largely run its course

BEN STANSALL / AFP / Getty Images
  • Australian home prices fell 0.5% in March, according to CoreLogic, seeing annual growth slow to 4.8%.
  • ANZ Bank doesn’t expect the weakness will last much longer.
  • Based off its house price model, it says stronger incomes growth and stability in official interest rates this year should mitigate new housing supply hitting the market.

Australia’s housing market is slowing down, led by outright price declines in Sydney and Melbourne.

According to CoreLogic, prices across the country fell 0.5% in March in weighted terms, trimming the increase on a year earlier to 4.8%, well below the double-digit gains seen in early 2017.

Some believe the Sydney and Melbourne-led slowdown has a lot further to run, while others believe the weakness will be short-lived.

Safe to say, forecasters from ANZ Bank remain firmly in the latter camp.

After updating its Australian house price model, ANZ says weakness seen in recent months will soon come to an end, leaving annual price growth higher both this year and next.

“The model’s forecasts are broadly unchanged, predicting an annual increase in prices of 2% in 2018 and 4% in 2019,” say Jack Chambers and Jo Masters, members of ANZ’s Australian economics team.

Source: ANZ Bank

Helping to underpin that view, the pair say stability in the RBA cash rate will help to underpin prices.

“We no longer expect any changes in monetary policy in 2018, and instead expect two rate hikes in 2019. For the model’s forecasts, this is a positive for price growth in 2018 due to the lack of interest rate rises,” they say.

Along with no increase in official borrowing costs, ANZ says a pick-up in household income growth, already running at the fastest annual pace since 2015, should also act as a tailwind for prices.

“Gross total income growth improved to 3.4% year-on-year in the December quarter of 2017,” say Chambers and Masters.

“We expect this will slowly become more positive for the model’s forecast throughout 2018 and 2019 given our expectation of a gradual improvement in wages growth.”

ANZ says these factors should help to offset an expected drag on prices from new housing stock hitting the market.

“Ongoing residential construction activity is expected to remain elevated in 2018 [which is] a negative for the model’s forecast due to the additional housing supply,” say Chambers and Masters.

“If building activity and completions slow in 2019 — as we expect — then this element will turn positive for the forecast.”

Why Australia’s latest housing market downturn largely reflects falling prices in Sydney and Melbourne

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