Written by Mark Thomas
4 February, 2020
“Dwelling prices are set for a period of sustained, solid growth” says Macquarie.
Macquarie forecasts national housing prices will rise by a further six percent to seven percent by the end of 2020, building on the strong momentum in the market at the end of 2019.
The Sydney and Melbourne residential property markets are likely to lead this trend, with prices expected to rise by about eight to ten percent in these markets by the end of this year, putting dwelling prices once again at record highs.
“While the recent extreme rate of growth in Sydney and Melbourne dwelling prices in 2019 is unlikely to be maintained, it now seems likely that dwelling prices are set for a period of sustained, solid growth,”
This year, rising property prices are expected to be further supported by historically low mortgage rates and the possibility of further cuts by the RBA.
“This could lead, once again, to the emergence of “animal spirits”, or FOMO – the “fear of missing out”, says Macquarie’s Justin Fabo.
Underlying demand for housing didn’t really weaken over the past couple of years, it just went into hibernation.
Ongoing strong population growth of around 1.5 percent per annum is also helping to support demand for housing.
“In our view, underlying demand for housing didn’t really weaken over the past couple of years, it just went into hibernation.”
Macquarie has pencilled in a 0.25 percent rate cut in the first quarter of 2020 but expects Board members will then wait to see the overall impact of recent rate reductions on the economy over time.
The December RBA Board Minutes highlighted “only a small share of borrowers had actively adjusted their scheduled mortgage payments following the reductions in interest rates”, suggesting the benefits of the rate cuts in terms of disposable income are yet to register for many borrowers.
“Many observers have become very impatient and there has been a degree of hyperventilating about the apparent lack of pass-through to the real economy from policy support delivered to date,” says Fabo. “More time is needed to properly gauge the effects of last year’s 75 basis points of cash rate cuts.”
Against this backdrop, the ingredients are in place to support further strength in the residential property market throughout 2020. This should be enhanced by ongoing low interest rates and the potential for rates to go even lower.
“Strengthening house prices may again put pressure on housing affordability but there are still downside risks to the property market outlook. Economists will watch for signs of further weakening in global growth as well as domestic warning signs that could impact confidence such as unemployment and wages growth.”
In light if the recent global economy growth scare following the rapid spread of the coronavirus, it is likely that interest rates will surprise on the downside in 2020 as authorities try to keep growth positive.
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