Invest
How low could house prices actually go?
With unemployment at a 20-year high, immigration becoming non-existent and interest rates having hit the lower bound, what can we expect from house prices? And should we be worried about it?
How low could house prices actually go?
With unemployment at a 20-year high, immigration becoming non-existent and interest rates having hit the lower bound, what can we expect from house prices? And should we be worried about it?
Nikko Asset Management fixed income portfolio manager Chris Rands has penned an article where he has looked at economic indicators to consider just how concerned Australian investors should be about a potential downward movement of domestic property prices.
According to the portfolio manager, current housing figures have been “remarkably resilient” given the circumstances surrounding the COVID-19 crisis, given they’ve only fallen by around 1 per cent in the past three months.
This is despite “some of the worst economic conditions Australia has seen in the past 70 years”, Mr Rands stated.
“Most forecasts in the market suggest there will be continued declines to come, but of a magnitude that is not dissimilar to 2019,” he continued.
Having analysed auction clearance rates, mortgage finance and building permits for new homes, the portfolio manager said: “In the short term, all three indicators are pointing to the same outcome: house price declines of approximately 5 to 10 per cent, which could be towards the lower or higher end of that range depending on which indicator is preferred.”
According to Mr Rands, it means investors should be, at the very least, mildly concerned.
“Yet this outlook only reflects what is already known (and observable), providing only a three- to six-month outlook without making much reference to what could be in store in 12 months’ time,” he conceded.
“Currently, Australia is facing its worst economic performance in 70 years with very little room for rates to fall. So, we must also think about how these indicators could move in the bigger-picture environment.”
Bigger-picture drivers include unemployment, the presence of fiscal stimulus (JobKeeper and JobSeeker), immigration and population growth, and the continuing record-low interest rates.
From the portfolio manager’s perspective, these big-picture drivers are split into three broad categories: the “good”, the “bad” and the “it depends”.
He’s lauded the Reserve Bank of Australia’s swift action as “good”, saying: “With interest rates falling a little over 1 per cent over the past 12 months, housing becomes more affordable.”
If all else were equal — which definitely is not — Mr Rands said prices would be set to rise more than 15 per cent from their mid-2019 levels, meaning this proactive action will stave off some of the more negative outcomes.
Falling into the category of “bad” is high levels of unemployment and seriously low levels of immigration, which point to weaker housing demand.
The portfolio manager explained that Australians who have lost their job will be far less likely to buy (and could become sellers), while the lower population growth means fewer people will now require new housing within the next 12 months.
In the “it depends” category, Mr Rands has placed fiscal support and loan deferrals.
“At the moment, unemployment benefits are two to three times higher than they usually would be and close to 500,000 borrowers have had their payments deferred,” he said.
“The fact that these benefits have been extended, albeit at lower amounts, means some of the more negative outcomes may be avoided (or simply delayed).”
However, the portfolio manager did raise concern about the reduction in the size of unemployment benefits, stating it would create “a far harsher environment for those who have been affected economically”.
Coming back to the question of “how worried should we be?”, Mr Rands said the answer to the question, at the moment, “falls on government support and just how long it will last”.
“Depending on how these support measures are changed, there is good reason to believe that the negatives will continue to outweigh the positives over the next 12 months as the expansionary policies are slowly unwound,” he said.
What does this mean?
According to Mr Rands, it means house prices could fall further than the forecast 5 to 10 per cent that most expect over the short term and into the 10–20 per cent decline range.
“That certainly calls for more concern than the short-term indicators would suggest,” he concluded.
About the author
About the author
Property
Are apartments a good investment?
As the property market surges towards 2017 highs, investors might be wondering if it is time to buy cheaper apartments closer to the city. ...Read more
Property
House prices set for pre-COVID highs in early 2021
National house prices are on track to be back to pre-COVID levels by early 2021, new research has revealed. ...Read more
Property
Should Australia cancel rental debts?
Nearly 1 million tenants across Australia could be left homeless if rental debt is not forgotten when the moratorium on evictions lifts, new research has found. ...Read more
Property
Why didn’t the Australian property market crash?
Doom and gloom headlines filled the news as soon as COVID-19 outbreak began, and Australia ultimately headed to its first recession in over 28 years, but no drastic decline was seen in the housing mar...Read more
Property
Top 20 school zones for property growth
New report from Domain revealed the top 10 primary and secondary school catchment zones, all with more than a 25 per cent house price growth year-on-year. ...Read more
Property
More Aussies ‘in tears’ during house-hunting
New research has found that 9 out of 10 Australians find the process of house-hunting more frustrating than exciting, revealing the search for “the one” is filled with frustration, stress and tear...Read more
Property
Property hotspots for young Aussies revealed
New research from Westpac revealed that the number of first home buyers looking to enter the market has more than doubled since 2019, proving that COVID-19 continues to shape Australian home ownership...Read more
Property
Aussies swap housemates for home ownership
The number of younger Australians looking to enter the property market in the next five years has doubled, as COVID-19 restrictions sees home ownership goals increase, according to research released ...Read more
Property
Are apartments a good investment?
As the property market surges towards 2017 highs, investors might be wondering if it is time to buy cheaper apartments closer to the city. ...Read more
Property
House prices set for pre-COVID highs in early 2021
National house prices are on track to be back to pre-COVID levels by early 2021, new research has revealed. ...Read more
Property
Should Australia cancel rental debts?
Nearly 1 million tenants across Australia could be left homeless if rental debt is not forgotten when the moratorium on evictions lifts, new research has found. ...Read more
Property
Why didn’t the Australian property market crash?
Doom and gloom headlines filled the news as soon as COVID-19 outbreak began, and Australia ultimately headed to its first recession in over 28 years, but no drastic decline was seen in the housing mar...Read more
Property
Top 20 school zones for property growth
New report from Domain revealed the top 10 primary and secondary school catchment zones, all with more than a 25 per cent house price growth year-on-year. ...Read more
Property
More Aussies ‘in tears’ during house-hunting
New research has found that 9 out of 10 Australians find the process of house-hunting more frustrating than exciting, revealing the search for “the one” is filled with frustration, stress and tear...Read more
Property
Property hotspots for young Aussies revealed
New research from Westpac revealed that the number of first home buyers looking to enter the market has more than doubled since 2019, proving that COVID-19 continues to shape Australian home ownership...Read more
Property
Aussies swap housemates for home ownership
The number of younger Australians looking to enter the property market in the next five years has doubled, as COVID-19 restrictions sees home ownership goals increase, according to research released ...Read more
More articles
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.
