WHERE NEXT FOR HOUSE PRICES – PART 2
As we noted yesterday, over the short-term at least, things are looking okay for the housing market in Australia.
The preliminary data from Corelogic suggests that price growth has already lifted above final price growth figures from the second half of last year.
This is shown by the black line in our charts, with house prices rising by 10.7% across the country in the year ending January 2017.
The current data suggests that capital city prices are up 11.1% – with Sydney leading the way (up 16%); followed by Melbourne (up 11.8%); Hobart (7.8%); Canberra (6.7%); Adelaide (4.8%) and Brisbane (4.4%). Prices fell in Perth (down 3.2%) and Darwin (0.7%). Yet, across regional Australia prices rose just 2.8%.
As we pointed out last week, there is a very uneven distribution of housing price appreciation going on.
So, the short-term house market ‘pushers’ – again, as outlined in yesterday’s post – are being felt.
But when looking over the medium to longer-term, the forward indicators suggest a less rosy picture.
Two vital long-term indictors of house market health are full-time jobs and wage growth.
For most, buying a home is very hard unless you have a full-time job. The more full-time jobs being created, the greater the demand for housing.
Also, house price growth has been traditionally tied very closely with wage growth. True, there has been some decoupling over the past decade or so, due to the rapid fall in interest rates; easing of banking regulations and quantitative easing (printing money).
But easy credit is close to its end. Yes, we think the RBA – again, as pointed out last week – will be forced to drop the cash rate this year, in order to look like the government is doing something about limp employment and to keep mortgage/business rates on an even keel.
We believe that the logical link between house price growth and wage growth is about to reconnect again.
Three other things are also in the medium to longer-term mix. These include:
- What’s coming next is rooted in the evolution of three interlocking forces: global trade, technology and demographics. In short, this spells deflation; disruption and much less work. For more revisit here.
- The USA. Who knows what the heck is really going on? Except to say that despite current appearances, it is very hard to leap tall buildings in a single bound. There is a lot of kryptonite out there – the biggest dose being the gap between what Superman will be able to do, as compared to what he’s promised he’ll do. Time will tell. But serious trade wrangles are almost a certainty.
- Little, at present, is being written in conventional media outlets about the tightening of the restrictions on the Chinese getting money out of China, to fund residential property in Australia.
Much of the recent dwelling price growth in Sydney and Melbourne is due to local, and especially overseas, Chinese buyers. This overseas component, whilst still having an impact, is declining, and of late, rapidly. What is helping to offset this Chinese exodus and temporarily inflate housing values, are the recent changes in superannuation. Again, see yesterday’s Missive.
Not only will Australia find itself in the flotsam and jetsam in a US-China trade wrangle, but now our housing markets will be altered considerably by actions in Beijing.
In summary, I see less property ladder and more snake over the medium to short-term. Things real restate look okay this year. But sometime in late 2017, yet more likely in 2018, much harder conditions should emerge.
Again, to repeat yesterday’s close – if you are buying an investment dwelling, best buy one that ticks the right boxes when it comes to Australia’s longer-term housing outlook.
Remember, a pendulum swings both ways.
Keen to hear your thoughts.
Until next time,
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