Economists name 'biggest losers' in Coalition win

THE Coalition's shock election victory over the weekend has provided an unexpected shot in the arm to Australia's sagging property market.

REA Group chief economist Nerida Conisbee said after the slowing of declines in April, she was expecting house prices to start flattening in May and maybe even increase by the end of June.

Ms Conisbee described the Coalition win, combined with APRA's proposed reduction of the 7 per cent interest rate test and the Reserve Bank flagging rate cuts, as "great news" for the property market.

"Certainly on the ground the property industry is feeling a lot more positive," she said. "We're not going to get back to where we were and that's good news because we still have big affordability problems in Sydney and Melbourne."

Price falls are slowing but affordability is still poor.
Price falls are slowing but affordability is still poor.

Despite Prime Minister Scott Morrison's proposed 5 per cent deposit scheme, Ms Conisbee said first homebuyers were "the biggest losers" from the Coalition win "but everyone else is either neutral or a winner".

"First homebuyers probably find it disappointing, they would have been the main beneficiaries from (Labor's proposed) negative gearing changes, prices would have continued to drop," she said.

"But at the same time we have seen a rebound in first homebuyer activity and banks are easing up. I think first homebuyers do need to be very careful with how much they borrow."

The two big risks, she said, were that prices for lower-cost homes would start to rise a lot more than the average, and that first homebuyers would take on too much debt and get into mortgage stress if unemployment shoots up.

 

Experts have revised their house price forecasts, and identified the ‘biggest losers’ of the election win.
Experts have revised their house price forecasts, and identified the ‘biggest losers’ of the election win.

 

"Rate cuts sound great for property but they're bad news because the economy is weak," she said. "If we see trade issues with China and the US escalate that could impact us to a large extent. There's a lot of uncertainty."

House prices in the NSW and Victorian capitals are now 14.5 per cent and 10.9 per cent down from their respective peaks in July and November 2017, according to CoreLogic, their worst falls on record.

AMP Capital chief economist Dr Shane Oliver has revised his house price forecasts from total top-to-bottom falls of 25 per cent in both Sydney and Melbourne and 15 per cent nationally to 19 per cent in Sydney, 15 per cent in Melbourne and 12 per cent nationally.

"The combination of the removal of the threat to property tax concessions, earlier interest rate cuts, financial help for first home buyers and APRA relaxing its 7 per cent interest rate test points to house prices bottoming earlier and higher than we have been expecting," Dr Oliver said in a note on Thursday.

But he warned the negatives weighing on the housing market "remain significant".

"Given still high house prices and poor affordability, still very high debt levels, tighter lending standards and rising unemployment a quick return to boom time conditions is most unlikely," he said.

"In particular, credit conditions are still tight with housing finance still falling with a brief bounce in February giving rise to further falls in March and the start-up of Comprehensive Credit Reporting which will see banks crack down on borrowers with multiple undeclared loans."

Dr Oliver said the biggest risk was that Australia "slides into a downwards spiral as the housing downturn - maybe in concert with a global slump - triggers a surge in unemployment which triggers rising defaults and a further plunge in house prices ultimately causing 30 per cent plus falls in national property prices".

"This is still a risk, but we remain of the view that it will be avoided," he said. "The housing cycle downturn will lead to the loss of around 60,000 jobs on our estimates."

CoreLogic head of research Cameron Kusher said the falls in Sydney and Melbourne were now likely to be more like 17-18 per cent and 15-16 per cent, "a little less than the 20 per cent we were expecting".

"Nationally the market's down about 9 per cent, it will probably end up being about 11-12 per cent," he said.

"We expect the market to bottom out around the end of this year. All three (the Coalition win, rate cuts and serviceability changes) overall are positive. I'm not too excited, I don't think it's going to lead to a rapid rebound, but it certainly will bring the bottom sooner."

Citi has also upgraded its forecasts from an annual fall of 10 per cent by June to 7.5 per cent. "Furthermore, we now expect year-on-year house prices to show growth of 3 per cent by December 2020 whereas previously we had no increase," Citi economist Josh Williamson said in a note this week.

Mr Williamson also cited the high likelihood of interest rate cuts in June and August, the government's first homebuyer deposit scheme and APRA's proposed changes to the 7 per cent interest rate test.

"According to our bank analysts this will result in a 10 per cent increase in borrowing capacity, make credit available to owner-occupier borrowers that have previously been denied loans but also benefit investors," he said.

"In combination, these changes should add to effective housing demand and moderate the peak-to-trough cycle in established house prices."

SQM Research founder Louis Christopher has also revised his forecasts. "So far the market this year has fallen by another 3.8 per cent," he said in a note this week.

"Our base case forecast was for a total 2019 dwelling price fall of between 3-6 per cent. It would be fair to say that up until this past weekend the market was heading towards the bottom end of that forecast."

The surprise Coalition victory now meant it was "likely the national housing market will record a price fall for this calendar year of between 1-4 per cent", according to Mr Christopher.

"We believe the Liberal victory means increasing buyer confidence in the market which was severely lacking as a result of the anticipation of the change in negative gearing and capital gains tax by a Labor government," he said.

Combined with the statements from ARPA and the RBA this week, Mr Christopher said another rapid boom wasn't out of the question despite the numerous housing market headwinds.

"If we are to see a rate cut of 50 basis points or more over the next two to three months, combined with (the) announcement by APRA, all cards are off the table for 2020," he said.

Earlier this week, Bronte Capital founder John Hempton predicted price falls of up to 85 per cent in "non-aspirational" outer suburbs in Sydney, Melbourne and smaller cities like Newcastle and Wollongong.


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