Westwood Conveyancing

Australian House prices are back

Australian house prices back from the abyss

     DR SHANE OLIVER

... seven things you need to know about the Australian property market

Key points

• The Australian housing market remains far more complicated than optimists & doomsters portray it to be.
• Yes, it’s expensive and heavily indebted but talk of mortgage stress is overstated & it’s been undersupplied
• The combination of rate cuts, the election and a modest regulatory relaxation have helped turn property prices back up, but the upswing is likely to be constrained.

Introduction

After the biggest fall in at least 40 years – with a 10.2% top to bottom fall between September 2017 and June this year - average capital city home prices have turned up again. I thought prices would fall further with a 15% top to bottom fall led by around 25% falls in Sydney and Melbourne.

But the facts changed from May – with the election removing the threat to negative gearing & the capital gains tax discount, earlier than expected interest rate cuts & a relaxation of APRA’s 7% interest rate test all pushing prices up again. So, where to from here?

Extreme property views

There are basically two extreme views amongst “property experts”. On the one hand, some real estate spruikers still wheel out the old “property will double every seven years” line. On the other hand, property doomsters say it’s hugely overvalued and overindebted with massive mortgage stress and so a 40% or so crash is inevitable.

The trouble with the former is that implies home price growth of 10.3% pa, so even if wages growth picks up to 3.5% (a big ask!) it implies that the average price to income ratio of Australian housing will rise to around 9 times over the next 7 years from around 6 times now and in 14 years’ time it will be 14 times!

The trouble with the doomsters is that they’ve been saying that for 15 years and we’re still waiting for the crash. In between, first home buyers are wondering why it’s so hard to do what my and my parent’s generation took for granted: be part of the Aussie dream with a quarter acre block. The reality is it’s far more complicated than these extremes. Here’s seven stylised “facts” regarding Australian property.

First – it’s expensive

This has been the case since early last decade and remains so despite the recent correction in prices:

According to the 2019 Demographia Housing Affordability Survey the median multiple of house prices to income is 5.7 times in Australia versus 3.5 in the US and 4.8 in the UK. In Sydney, it’s 11.7 times & Melbourne is 9.7 times. 

The ratios of house prices to incomes and rents relative to their long-term averages are at the high end of OECD countries.

This article will open up in your browser

Source  :  https://www.ampcapital.com/au/en/insights-hub/articles/2019/september/australian-house-prices-back-from-the-abyss?csid=1135474858

© Copyright Biz-e-News