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
House price surge to cause ‘social and political problems’: ANZ
Rising house prices spurred on by low interest rates are “raising eyebrows” and could create “real social and political problems”, ANZ’s CEO has warned. ...Read more
Property
How important is a buyer’s agent in a rising market?
In a hotly contested seller’s market, investors are being alerted to the importance of a good buyer’s agent. ...Read more
Property
First home buyers guide: Grants and assistance in each state and territory
The federal and local governments have launched several grants and assistance programs to help their citizens achieve the great Australian dream of owning a home. ...Read more
Property
Transition period announced ahead of tenancy moratorium end
With the end of the moratorium on evictions in sight, the NSW government has announced a new measure aimed to assist the residential tenancy market transition back to pre-COVID conditions. ...Read more
Property
First home buyers brace for strengthening headwinds
While Australian first home buyers dominated the market in 2020, increasing their market share by 50.4 per cent in the past year, they're likely to face strengthening headwinds as prices soar. ...Read more
Property
Australia’s most popular rental suburbs revealed
Tenants should brace themselves for rental price hikes as tightening vacancy rates continue across the country, new research has revealed. ...Read more
Property
Australian home values rise at fastest rate in 17 years
Overall, Australian home values surged 2.1 per cent higher in February, the largest month-on-month change in CoreLogic’s national home value index since August 2003. ...Read more
Property
Housing finance records continue to tumble
Australian housing loan commitment has reached another record high in January, rising by 10.5 per cent in the last month alone, official figures show. ...Read more
Property
House price surge to cause ‘social and political problems’: ANZ
Rising house prices spurred on by low interest rates are “raising eyebrows” and could create “real social and political problems”, ANZ’s CEO has warned. ...Read more
Property
How important is a buyer’s agent in a rising market?
In a hotly contested seller’s market, investors are being alerted to the importance of a good buyer’s agent. ...Read more
Property
First home buyers guide: Grants and assistance in each state and territory
The federal and local governments have launched several grants and assistance programs to help their citizens achieve the great Australian dream of owning a home. ...Read more
Property
Transition period announced ahead of tenancy moratorium end
With the end of the moratorium on evictions in sight, the NSW government has announced a new measure aimed to assist the residential tenancy market transition back to pre-COVID conditions. ...Read more
Property
First home buyers brace for strengthening headwinds
While Australian first home buyers dominated the market in 2020, increasing their market share by 50.4 per cent in the past year, they're likely to face strengthening headwinds as prices soar. ...Read more
Property
Australia’s most popular rental suburbs revealed
Tenants should brace themselves for rental price hikes as tightening vacancy rates continue across the country, new research has revealed. ...Read more
Property
Australian home values rise at fastest rate in 17 years
Overall, Australian home values surged 2.1 per cent higher in February, the largest month-on-month change in CoreLogic’s national home value index since August 2003. ...Read more
Property
Housing finance records continue to tumble
Australian housing loan commitment has reached another record high in January, rising by 10.5 per cent in the last month alone, official figures show. ...Read more
More articles
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.
