Hot property market possible throughout 2021
Published 5:17 am 27 Apr 2021
Regulators could move to cool prices in 2022.
Property markets around the country are booming, with national housing prices growing at their fastest pace in 32 years. But how long will it last?
If the nation’s top economists are right, there’s a good chance we will see prices grow 10-15 per cent by the end of the year. However, if the strong growth continues the nation’s financial regulators – the Reserve Bank of Australia and the Australian Prudential Regulation Authority – are likely to step in to cool things down.
Speaking at a recent event hosted by the Urban Development Institute of Australia, ANZ economist Daniel Gradwell said Australia’s regulators may decide to follow the lead of their New Zealand counterparts and step in to put some control on the markets.
“As much as there are some benefits to rising prices at the moment, in terms of the wealth effect and the impact that has on peoples’ spending patterns, I think it’s also worth keeping in mind where some of the downside risks might play out over the next 12 or 18 months.”
Mr Gradwell’s prediction was echoed by Kristina Clifton, a senior economist with the Commonwealth Bank of Australia, who said the rapid and unprecedented rise in dwelling prices increases the chance of regulators trying to slowdown lending activity. But she predicted it would not happen in 2021.
In a letter to CBA clients, Ms Clifton said house prices were not the major concern of the RBA and APRA, who would prioritise financial stability and lending standards first, and focus on key metric such as the share of investor lending, interest-only lending and high loan-to-valuation ratios which are not yet on the radar.
“Based on the current trends in these metrics, it’s our view that we are unlikely to see any macroprudential policies put into place in 2021,” Ms Clifton wrote. “In fact, proposed changes to responsible lending rules may mean that lending becomes a little less restrictive in the near term.”
AMP Capital economist, Shane Oliver told ABC news that he believed property prices could rise as much as 15 per cent throughout this year before stabilising.
Mr Oliver said this is the third but most pronounced property boom in the past century in Australia, but that factors which had in the past driven down interest rates since the 1980s, when they were at an all-time high, such as globalisation and deregulation are no longer in play.
“If inflation is bottoming, then so will interest rates and the super cycle of each new economic slowdown leading to even lower mortgage rates and ever-higher debt levels driving ever-higher house prices relative to wages will come to an end,” he said. “If population growth remains as weak as the government is projecting over the next two years, and construction stays up, we will move into a clear oversupply.”
This would ultimately improve housing affordability he said, and help support the rental market.
However, Mr Oliver also warned that investors should not read too much into the current predictions, especially as the rest of the world begins a much slower COVID-19 recovery than that which has been experienced by Australia.
For example, Mr Oliver said one more interest rate cut or an unexpected growth in population once borders are reopened, could throw all predictions out the window.
“That said, there are good reasons to expect that the forces that have driven average Australian capital city property prices well above trend and well above price-to-income ratios seen in comparable countries over the last two decades may be at, or close to, having finally run their course,” he said.
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