The increasing real estate price is setting the housing market up for another boom. This is what economists are worried about as prices have been increasing since August.
The fast recovery of prices which resulted from a series of events, not the least of which is the interest rate cuts by the Reserve Bank of Australia (RBA) in June and July, continues to stun economists.
Head of the Australian Economics team for Australia and New Zealand Banking Group (ANZ), David Plank says, “The turnaround in the housing sector has been sharper than we forecast just a few months ago.”
Macro-Prudential Measures Will Limit House Debt
According to Mr. Plank, their expectations for clearance rates, prices, and finance have been more than met. However, if the real estate price continues to rise and with it the mortgage borrowers lending, then some regulatory measures will be put in place.
Mr. Plank said, “We expect that the regulators will need to step in and re-introduce some sort of macro-prudential measures to limit the growth in housing debt.”
Morgans chief economist, Michael Knox is in no doubt that the loosening of lending restrictions of the Australian Prudential Regulatory Authority (APR), the rate cuts by RBA, and the access to more money by low to middle-income earners provided by tax refunds, have all led to the housing market “building a floor.”
Real Estate Price Increase
Macquarie Bank senior economist Justin Fabo expects real estate price to rise by five per cent “as interest rates decline and many households can borrow a lot more.“ Sydney and Melbourne where the upturn is “quite strong” will particularly see this increase.
Real estate price in August has increased 1.6 per cent in Sydney and 1.4 per cent in Melbourne.
On the other hand, UBS investment bank economist Carlos Cacho figures the increase will be 5 to 10 percent year-on-year for 12 months ahead. An increase that the bank is calling “mini-boom,” and which represents a “material risk” the RBA will be likely unwilling to exacerbate by cutting rates again.
He said, “We think regulators stand ready to use macroprudential tightening and consider further measures in the future should circumstances change.”
Westpac is also expecting real estate property to rise by about 12 per cent in Sydney and Melbourne by the end of 2020.
Tim Toohey, an economist at Yarra Capital is also concerned about housing market boom.
“The impact of marginal shifts in interest rates upon asset prices can never be finely calibrated. It is possible that, should the RBA decide to cut a further 50 basis points in concert with renewed competition in the provision of finance, increased investor activity and a shift in demand by foreign buyers, house prices could accelerate at an uncomfortable pace,” the economist said.
Meanwhile, not all believe a housing market boom is inevitable.
Brisk Real Estate Price Increase Will Not Keep On
Sarah Hunter of BIS Oxford Economics is not expecting the increase to take a sharper turn but is anticipating instead a moderate increase over the next 12 months with a sustained house price growth.
“The recent bounce back in house prices in Sydney and Melbourne looks like it’s a result of limited supply and a move by owner-occupiers to enter the market,” the economist says.
“Improved market conditions will encourage sellers into the market, while slow-growing household income will limit how much buyers can borrow, even when the impact of cash rate cuts and the loosening of lending rules by APRA are taken into account.”
Dr Shane Oliver, head of Investment Strategy and Economics and chief economist at AMP Capital, shared the same view. Dr. Oliver enumerated the reasons why a housing market boom is unlikely to happen.
“Our assessment remains that after a further bounce price gains will be constrained through next year due to still tighter lending standards, unit supply, slow growth and rising unemployment,” Dr Oliver said.
No Housing Market Boom
Though a good number of economists believe the increasing real estate price is setting up the stage for another housing market boom, there are also a lot who do not believe so.
Barclays Bank economist Rahul Bajoria believes prices are stabilising and that the price increase should not trouble the RBA at all. He said, “At this point, housing bubble concern should not reduce easing requirements.”
Chief economist for ANZ at Goldman Sachs, Andrew Boak also said real estate price increase is not a bad thing from a spending perspective.
“We would welcome it given it would support household consumption and residential construction over time, both of which have been very weak in recent quarters,” he says.
“That said, we are not particularly optimistic about the political system’s ability to deal with the housing affordability issue in Australia, which becomes more of an issue during price upswings.”
Need tax advice from a property accountant? Contact a Chan & Naylor accounting specialist here.
Aside from tax assistance, have a look at our other accounting and advisory services designed to help you achieve greater financial success.
If you like this post, “Guide to ATO’s Capital Gains Tax on Cryptocurrency,” subscribe to our newsletter and stay in touch with us by liking our main Chan & Naylor Facebook page, as well as our Linkedin, Instagram, and Twitter pages.
The Chan & Naylor Group has national offices in South West Sydney, Sydney, Pymble and Parramatta in New South Wales, Wheelers Hill, Melbourne, Moonee Ponds and Hawthorn in Victoria, Brisbane and Capalaba in Queensland, and East Perth in Western Australia that can assist you with your accounting needs. Contact us here today.