Australian Property Market Update (Written by One Agency Head Office)
Interest rates are unlikely to increase until 2020 according to senior Australian economist Dr Shane Oliver. Dr Oliver offered compelling reasons why this would be the case, including that the Reserve Bank of Australia has left rates on hold for 21 months, and in his opinion is likely to do so for another 19 months.
Economic growth is predicted to go below the RBA expectations and according to Dr Oliver this is a strong reason for the anticipated interest rate stability until 2020. With growth now likely to be 2.5-3 per cent, below the RBA expectations of 3.25 per cent. Reasons for the lower than expected growth include a slow down in housing construction, high debt levels and lower consumer spending due to slow wages growth and falling house prices in Melbourne and Sydney. Even tax cuts in the Federal budget are unlikely to have much of an impact on this slower-than-predicted growth.
Inflation and wages are both predicted to remain low, further dampening any chance of a rate rise. “Continuing weak wages growth along with excess capacity and high levels of competition in goods markets will keep underlying inflation around the low end of the RBA’s 2-3 per cent target for a lengthy period yet,” said Dr Oliver.
Furthermore, with the household debt boom being over and stricter lending standards predicted particularly in relation to borrowers’ income, expenses and total debt levels. Lower income borrowers will be further squeezed and high property-price-to-income markets like Melbourne and Sydney will become more elusive for these buyers.
Housing affordability is an issue Australia wide, and supply is a problem in many markets, this coupled with the tightening of restrictions by APRA on investors and interest only loans, further discouraging the RBA from raising interest rates.
Dr Oliver suggests a couple of factors to watch out for, which may impact upon price growth and interest rates. Firstly, any move to lower immigration levels and cut capital gains tax discounts will slow house price growth further. Secondly, if the declines in home prices turn out to be more than expected, then the next move could in fact end up being a cut!
The Surf Coast property market continues to show signs of strength, with solid results in all areas including Jan Juc, the Torquay North estates and Old Torquay. With buyers moving from Melbourne to the coast the demand for properties on the Surf Coast seems to be steadily increasing. Melbourne buyers are equipped with a greater capacity to leverage their real estate good fortune, buy a coastal property for less and scale back some household debt.
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