preface
In 2018, the Australian housing market continued to decline. According to Corelogic, an Australian property research firm, the 2018 index of home prices across Australia may have fallen about 5 percent from its recent high, but is still about 22 percent higher than it was five years ago.
As far as states / territories are concerned, as of the end of November, the Australian capital cities had mixed ups and downs. Prices in Sydney and Melbourne fell 8.1 percent and 5.8 percent respectively from a year earlier, while Hobart and Canberra rose 9.3 percent and 4.0 percent respectively.
As a result, home prices in five of the eight capital cities recorded year-on-year increases for the whole of 2018, underscoring weakness in Sydney and Melbourne. In addition, Perth`s house price performance to some extent also become a drag on Australian house prices.
Looking ahead to 2019, how is the Australian property market going? To answer this question, we need to look back on the factors that have contributed to the performance of the housing market in the near future and see how they will affect house prices over the next 12 months.
The impact of house price trend in 2019
Credit tightening is a major factor in the ongoing downward trend in house prices. This is different from the main triggers of previous home price declines in Australia.
Specifically, previous home price declines were mainly affected by changes in monetary policy (interest rates) or economic tsunamis (such as the global financial crisis or the economic depression at the end of the last century).
"in terms of this downward cycle, on the one hand, since the introduction of the first round of macroprudential policies by the Australian prudential Authority (APRA) in early 2015, the supply side of credit has continued to tighten, particularly on investment loans.
On the other hand, new home loans fell sharply in the second half of 2018, indicating a tightening of both credit standards and institutional risk assessment standards. At the same time, due to the rising cost of financing, lending institutions have successively increased mortgage interest rates moderately, creating pressure on the growth of credit. "
So how will Australia`s overall credit environment change in 2019?
First, we saw that the APRA announced on December 19 that "interest-only loans should not exceed 30 percent of new loans and investment loans should not grow by more than 10 percent."
Even so, we see a high household debt ratio in Australia. At the same time, the Royal Australian Commission will submit its final report on the banking investigation in early 2019.
As a result, the Corelogic expects Australia`s main lenders to remain cautious and conservative over the next 12 months. In other words, high-quality customers (high down payments, low mortgage ratios, strong solvency) are the target groups for fierce competition among big banks.
In contrast, borrowers with a down payment ratio of less than 20 percent, borrowers with more than six times debt-to-income ratios or difficult access to loans from banks may be at risk of interest rate premiums.
Overall, housing loans will remain a major obstacle to the recovery in 2019, according to Corelogic, a property research firm. However, high-quality customers still have a strong bargaining power, and then obtain a more favorable mortgage interest rate. In addition, if house prices fall in 2019 and credit turnaround times raise concerns among financial institutions, then existing macro-fundamentals are expected to be "further loosened", which in turn will ease the fall in house prices.
2 interest rate
Given that the vast majority of home loans in Australia are variable-rate loans, any change in the cost of loans will have a significant impact on credit demand.
At present, the basic consensus in Australia is that the bank will remain unchanged at a low interest rate of 1.5 percent for the whole of 2019 in an effort to stabilise. In fact, the level of pricing in the interest rate futures market indicates that the Australian Reserve Bank is likely to cut interest rates in the coming months.
The current level of official interest rates is arguably the lowest level since the 1960s. Low interest rate level for buyers to provide support for the role of demand. However, with tight interest rates and limited financing, low interest rates do not stimulate demand for homes as they have done since previous years. "
3. Market sentiment
Consumer sentiment is an important factor in considering housing demand. The reason is simple, the home buyers need to have the confidence and willingness to bear the debt. Australia`s consumer confidence index is neutral, indicating that consumers are neither optimistic nor pessimistic at the moment, according to the latest survey of consumer confidence conducted by the Bank of Western Pacific / Melbourne Research Institute.
But the sub-index, which measures house price expectations, hit a new low in the year. At the same time, the sub-index used to measure the timing of home purchase also showed the opposite trend, more pessimistic than the broad consumer confidence index.
As a result, according to Corelogic, consumer confidence in 2019 is largely consistent with 2018, a relatively neutral level. In addition, Australia will have a federal election in the first half of next year, which is likely to have a short-term impact on consumer confidence. "
4. Economic conditions
Australia`s recent national accounts data actually masked weak factors in the economy, including slower growth in large infrastructure, lower household spending and lower construction activity. Notably, the decline in household savings is a bad sign. At the same time, the continued weakness in retail sales data and the disappearance of the wealth effect are expected to have a negative impact on economic growth.
In terms of favorable factors, the continued improvement in the job market to a certain extent to support the increase in salary income.
Overall, according to Corelogic forecasts, Australia`s economic growth in 2019 was lower than expected, but it was still on a long-term average. The bank is expected to cut its economic growth forecast early next year. "if the ADB does cut its growth forecast, the timetable for an increase in official interest rates will only be further delayed."
5 supply and demand situation
First, housing supply and demand remained broadly consistent in 2018, but there was an oversupply of high-rise apartments in some areas. High-rise apartment construction in Sydney and Melbourne, for example, hit record highs in the second half of 2018, potentially driving new high-rise apartment construction in 2019.
Corelogic expects that the current settlement price of some apartments is higher than the original contract price, which could rise in 2019. In contrast, the single-family housing market presents a sustainable level of development.
"as far as the housing demand side is concerned, there has been a marked slowdown in the demand for overseas buyers across Australia in 2018. This trend is likely to persist in 2019. In fact, the federal government and the state government are increasingly divided over immigration policy. Overall, the number of new immigrants from Australia will slow down in 2019. "
By contrast, the decline in the number of immigrants abroad has a greater impact on the demand for rental housing than on the demand for housing.
It is worth mentioning that the movement of people in Australia`s states / territories has increased. More and more people are moving from New and Victoria to areas such as Kunzhou and Tazhou, where housing affordability is poor and living costs are higher, which in turn supports the demand of housing market for the latter.
Analysis on the influencing factors of house price trend in 2019
There is still room for house prices to fall
Home prices in Australia may continue to fall in 2019, driven by declines in Sydney and Melbourne and slowing growth in other capital cities, according to Corelogic.
There are two cities in which house prices deserve investors` attention: Darwin and Perth. In Darwin`s case, with house prices continuing to improve, the high-end housing market is expected to continue its long-term recovery in 2019. Meanwhile, local house prices in Perth may have been rising in 2019.
In 2019, credit tightening, consumer confidence, federal election and other factors may cause house prices to fall, demand will be suppressed, and the trend is full of uncertainty.
It is worth mentioning that the federal election early next year may introduce policy changes related to the housing market, such as capital gains tax and withholding tax.
3. Guard against the "risk" of the high-rise apartment market in Sydney and Melbourne
As supply continues to rise and demand continues to decline, the risk of clearing high-rise apartment developments such as Sydney and Melbourne has risen significantly. Among them, the negative factors include: the number of new overseas immigrants decreases while the new state / Victoria population continues to flow to other states, the settlement price is lower than the contract price, and the financing channels are limited, and so on.
4 Investment opportunities in non-capital regions
Outside capital cities, areas famous for their lifestyle may offer good investment opportunities, according to Corelogic. On the one hand, buyers from Sydney and Melbourne used their improved wealth after the housing boom to buy second homes and holiday homes, and baby boomers positioned themselves in these lifestyle markets as they neared retirement. On the other hand, professionals can use high-speed Internet services and efficient commute time to work remotely.
Finally, there has been a recovery in mining investment, which in turn has helped to warm up the housing market in these areas.
3 State / Territory house price outlook 2019
Between 2012 and 2017, house prices rose more than 75 percent over the five-year period. In 2018, the housing market was down 9 percent. Looking ahead to 2019, Sydney`s house prices still have room for further decline.
New state housing prices are affected by a number of adverse factors, including housing loan supply constraints, slowing population growth caused by slowing demand, the high-rise apartment market oversupply, and so on. In addition, despite the decline in house prices, Sydney`s median home price is still more than nine times the annual household income, indicating that the local housing burden will remain.
Housing in the new state`s non-capital areas, especially coastal areas, is more resilient than capital cities. With the retirement of the baby boomers, some desirable areas of life will become the preferred choice for investors and homeowners.
By the end of 2018, house prices in Melbourne, the capital city of Victoria, had fallen by about 6.5%. Looking ahead to 2019, housing prices in Melbourne could fall further in 2019 due to tighter credit supply, slower population growth and higher housing supply.
Despite falling house prices, Melbourne`s median home price is still more than eight times the annual household income, suggesting affordability remains a problem. Positive factors in support of local housing include Australia`s largest population growth rate (albeit slower than previous years, but still above the long-term average), strong labour market performance and low interest rates.
In the case of non-capital regions of Victoria, the housing market has performed relatively healthily, driving house prices around the world higher. Specifically, housing prices in large non-capital cities such as Geelong,Ballarat and Bendigo have slowed but are still positive.
[经] Queensland
Over the past five years, housing prices in the capital city of Brisbane have grown only slightly higher than inflation and income growth over the same period. Prices in Brisbane are expected to rise moderately further in 2019.
Home prices in Brisbane have risen at an annual rate of 2.7 percent over the past five years, according to data. For 2018, house prices in Brisbane rose only 0.5%. Looking forward to 2019, Brisbane house prices or roughly the same rise.
The high-rise apartment market is a major drag on Brisbane house prices as a whole. The housing market is expected to recover in 2019.
In the case of non-capital cities, prices in coastal cities south-east of Queensland, such as the Gold Coast and Yangguan Coast, have grown relatively higher over the past year. Looking ahead to 2019, housing prices in non-capital Queensland may have experienced modest growth, thanks to continued interstate inflows, rising demand for home purchases by local lifestyle people, gradual improvements in supporting infrastructure and improved employment opportunities.
Over the past five years, house prices in South Australia have continued to rise at an average annual rate of 3.0 per cent. For 2018, growth slowed to 1.5% as a result of the credit crunch. Looking ahead to 2019, despite a further slowdown in home price growth in Adelaide, local housing prices will still show positive growth, driven by improved economic conditions, population inflows and relatively high housing affordability.
In contrast, South Australia`s non-capital region is not as healthy as Adelaide. Home prices have fallen at an average annual rate of 0.1% over the past five years. Looking ahead to 2019, some capital regions, such as the Barossa-Yorke-Mid North region, may experience moderate increases.
west Australia
The Perth housing market has been falling since mid-2014, and prices are down 15 percent from cyclical highs. Prices fell about 4.5 percent in 2018. Looking ahead to 2019, Corelogic forecasts that while Perth house prices are likely to bottom out, there is no guarantee that prices will rebound significantly.
For non-capital regions, home prices are down about 55% from 2012. At the same time, throughout 2018, Western Australia`s non-capital region is still a "falling and falling" situation. It is expected that the local housing prices in 2019 is a gradual process of bottoming out.
Over the past few years, housing prices in Hobart, the capital of Tasmania, and other non-capital regions have been ahead of the rest of Australia. Although Hobart`s housing price increase narrowed in 2018, it was still the capital city with the highest year-on-year increase in Australia.
By the end of 2018, home prices in Hobart and Tara were up 9 percent and 11 percent, respectively, compared with the same period last year.
Looking ahead to 2019, home prices in Hobart and the state`s non-capital regions will continue to rise, but the rate of increase will be significantly lower than in 2018. The local housing market is likely to be Australia`s best performing market in 2019, given the continuing increase in inflows, tight housing supply, improved economic conditions and increased levels of investment.
Northern Territory
The Darwin real estate market in the capital city of Darwin is showing signs of improvement recently. 2018 was relatively stable, but people fell nearly 24 percent from their 2014 highs.
At present, Darwin is the most affordable city in Australia, both in terms of median price and price-to-income ratio. At the same time, the local rental rate of return is also the highest level in Australia.
Looking ahead to 2019, Darwin`s housing market may attract more investors with advantages such as low thresholds and robust cash returns.
Australian Capital Territory
On the whole, Canberra has been Australia`s most stable market in terms of capital gains, rental yields and market activity.
Over the past five years, local housing prices have risen at an average annual rate of 4 per cent. Looking forward to 2019, local employment growth remained strong and unemployment was the lowest in all states. In addition, local house price income ratio of 5 times, has been stable at a relatively healthy level. In view of this, Canberra house prices will continue to grow in 2019, roughly in line with 2018.
END
Looking back in 2018, weakness in both the Australian housing market and China`s housing market has become a common denominator.
Looking ahead to 2019, the federal / local government as well as regulators stressed a word of "stability" in their statements, given the growing uncertainty about the outlook for global economic growth. As a result, for those looking for a house price crash, there is a big chance that the real estate market will be too big in the economy, after all.
For people who expect house prices to rise, factors such as different regions, different economic conditions, different policies and so on should be the focus of our attention.
