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Australia Housing Market Predictions 2020

January 10, 2020

Housing Market Forecast 2020

Our previous report on the housing market in Australia was a little dour, and sure enough 2018/2019 were a trying time for investors and rental property owners.

A new forecast from Reuters paints a much better picture for 2020.  A poll of real estate economists believe the housing market will rebound,  2.75% in 2020 and 3.50% in 2021.

The US/China trade deal just announced promises to bring export levels to China back again.  That would be the most significant boost to the housing market. Secondarily, recent troubles plus the bushfires, are encouraging lower interest rates and easier monetary policy.

Australia City Price Growth. Chart courtesy of Corelogic

Which Cities Will Rebound in 2020?

Beautiful Hobart Australia

Markets have rebounded. Corelogic reported prices fell 3.8% over the first six months of 2019 and then rebounded  by 7.0% over the second half of the year. Now with low interest rates and a new US China trade deal, the outlook is becoming rosy.

We expect that lower interest rates will have a more powerful effect on housing prices than commonly expected,” Macquarie economist Justin Fabo told Reuters.

He expects prices in Sydney and Melbourne to surge 9% in 2020, the most bullish of the 9 forecasts for capital cities.

 

Dwelling value growth Australian Cities – Chart courtesy of Corelogc

The longer the downturn continues, the more pressure Australian banks will experience with their 1.7$ trillion debt.  That mortgage related debt may be one of the highest in the world.

Are Rent Yields About to Grow Significantly?

Australia Rent Yields – Chart courtesy of Corelogic

Can Australia’s Economy Stay Strong?

Australia’s economy has been bolstered by widening trade surpluses. GDP is expected to grow 2.5% in 2019. Yet lower commodity prices, reduced foreign investment, consumer debt trouble, and more is making a few experts warn of a housing crash. Home prices have been dropping for 12 straight months.

“more than 60% of bank loans in Australia are in residential properties, making it the highest proportion in developed countries and more than double compared to the US” — from post in the Singapore Business Review

Australian investors, landlords, and property managers will likely feel the howling winds of change in 2019. Property managers will have to upgrade how they conduct property management to hang onto tenants.

Despite the recent trends, there may be a buying opportunity in one of Australia’s larger cities. Prices and rents here are much lower than Europe or North America.  Are Australian rent prices a concern? Let’s take a look so you can determine the price/rent ratio and the ROI on buying Australian real estate.

Sydney Australia

For over-indebted Australian mortgage holders, it might be the end, but for savvy investors, 2019 might bring some outstanding buying opportunities for rental income property.  With or without the negative gearing proposed by the labor party, experts suggest rental property investors can still come out ahead.

Prices Dropping Down Under

Compare the two charts below to see how prices have changed over the last months. Last month, prices in Sydney dropped 8% overall while house price fell by 9.2%.

Monthly home value index Australia. Screenshot courtesy of Corelogic.com.au

The general consensus is that Australia’s housing market has resumed its upward momentum during the last half of 2019, and is ready for solid growth in 2020.

Perth Australia

The writing is now on the wall: Australia’s housing boom is over.” – Paul Bloxham and Daniel Smith, Economists at HSBC Australia

This steep retraction is sharp contrast to June where prices were rising 5 times faster than wages. The price rises were partly attributed to repressive land usage laws, typical around the world, resulting in bidding wars on land available for residential development.

Screen Capture courtesy of Tradingeconomics.com

The country survived the great recession well, but this time with China buyers pulling out of the scene, rising interest rates, and international trade wars, the potential for a crash exists. Home prices could have risen much too high in comparison with other countries. And now with foreign buyers avoiding Australia, there is little to support the excessive prices.

Swiss Bank UBS has sounded warnings on Australia’s housing market recently also. Only China and Russia have housing markets that are declining faster so it’s easy for all the experts to pull the plug.

As the above graphic shows, after 6 years of price growth of about 8% per year, prices began to fall in 2017. This chart doesn’t show the precipitous drops of the last month. Fears of oversupply of housing will cause developers to cut back on development which decreases investment and tax revenue for governments and slows the economy. Real estate is big part of any economy including Australia’s and the loss becomes iterative.

 

Screen Capture courtesy of ABS.gov.au Building Approvals Report 2018

Up till now, the housing and economic outlook for Australia were strong:

Screen Capture courtesy of KPMG

 

The question is, whether investment of all types will dry up and if rising tariffs will alter the global balance of trade, weakening Asia and AustralAsia to point of recession. If China’s housing market is undergoing a correction, how would this affect Australia’s housing picture for 2019? Australia exports 80% of its natural resources to China. And China is sliding.

The price trends across the major Australian cities are pretty clear. At this point, there’s no reason for upward price pressure and more downside to the picture.

Australia Rental Price Update

Apartment and house rents have taken a decided turn for the worse in late 2018  The rental markets of Sydney, Melbourne, and Brisbane, are showing strong downward motion. Rent prices are flat in Adelaide, Perth, Canberra, and Hobart. Housing market prices declined in Sydney, Melbourne and Perth, but rose in other cities.

Rent prices are flat or went down for the most part in November.  See more of the Australia rental housing market stats at Rent.com.au.

Screenshot courtesy of rent.com.au

Much of the Australian housing market predictions will be influenced by international trade, China imports, and China’s access to its traditional export markets. Australia’s exports were in decline.

Predictions for 2020

The housing markets did fall into a retraction in 2018/2019. The stubbornness of US President Trump’s “America First Policy” and tariffs against China, the ripple effects will take their toll on the Australian economy in the years ahead.  Those effects haven’t been felt is some cities, yet will inevitably be equally felt among all major cities as lending is tightened.

First time homebuyer growth as surged in some states, however with tightened lending and a sagging economy, that might reverse itself.

Reductions in rent prices are steep in Hobart, Darwin and Canberra, and price drops may hit all other cities by 2019. That’s good news for housing affordability but less positive for investors.  If you’re deep into the housing market and need deep numbers, see the Residential Property Prospects 2018 – 2021 report published by BIS Oxford.  Just be wary of old data that doesn’t reflect the macroeconomic changes going on globally.

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We’ll keep you updated as Australia’s housing market progresses in 2018.  Take a good look at the California housing predictions and the best cities to invest in to capture maximum yields.

 

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