Boom. Correction. Comeback? The early signs that property prices in Melbourne and Sydney are on the up. Let’s peer into the 2020 housing market crystal ball.
Prices look ready to rise
The latest NAB Residential Property Survey suggests house prices will have increased 0.7 per cent by the end of this year, before jumping a further 7.4 per cent in 2020. And Melbourne and Sydney – the two cities hit hardest by the downturn – are expected to lead the charge.
The talk is now of a housing market well on the way to recovery. According to the survey, prices are predicted to strengthen into 2021, with property experts in all states, except WA, expecting positive gains.
“Victoria and New South Wales were expected to be the weakest states for price growth and the only states where prices were tipped to fall,” said NAB chief economist Alan Oster.
Hang on, help is on the way
The market could see additional stimulus in the form of the Federal Government’s First Home Deposit Scheme – designed to lower the amount first home buyers need to save to buy a property.
When it kicks off on January 1 of 2020, the Government will offer loan guarantees for eligible low and middle income buyers of up to 15 per cent of the purchase price of a property – as long as they’ve saved an initial 5 per cent deposit. This can help them buy sooner and save them from paying lenders mortgage insurance premiums.
“While the results suggest the RBA’s repeated cuts in rates has encouraged buyers to enter or reenter the market, there’s still a lot of talk about rates dropping even further in the new year. ”
But access to the scheme is limited to 10,000 borrowers a year, and the ABS reported nearly 110,000 first home buyers over the past 12 months.
First time buyers also need to be aware of the risks involved when borrowing 95% of the price of a property. If property prices fall instead of rise, they could find themselves paying more for their mortgage than their home is worth.
Further cuts could be coming
While slight property price rises suggest the RBA’s repeated cuts in rates – to record-breaking lows, no less – have encouraged buyers to enter or reenter the market, there’s still a lot of talk about rates dropping even further in the new year.
In September, the Australian Financial Review’s economist survey saw our nation’s experts correctly call October’s cut to 0.75%. And that came with a further prediction that the first half of the new year will see at least one further reduction, leaving the rate at a new record low of 0.5% by June 2020.
That would be very good news for homeowners with mortgage debt to pay, but leaves first time buyers walking the tightrope between getting the best deal for their loan, and seeing increased demand potentially push prices out of their grasp again.
Developers may feel the pinch
The market for existing residential properties seems set to see gains, but 2020 is showing signs of being a challenging 12 months for developers.
Speaking to the CFA Societies Australia Investment Conference in October this year, RBA Deputy Governor Guy Debelle said that “we had expected construction activity to remain at a pretty high level for most of this year, but it turned down sooner and by more than we had expected.”
And that downturn in construction activity is predicted to continue, with Debelle saying the RBA are “forecasting a further 7 per cent decline in dwelling investment over the next year, and there is some risk the decline could be even larger.”
That sort of drop could have a major flow-on effect to the wider economy, too, as less spending on new builds impact an industry that accounts for around 2% of Australian jobs – and is closely tied to the business services, engineering and manufacturing sectors.
Overseas buyers look ready to return
When Australian property prices fell significantly in 2017, Chinese investment in the market dropped too. But a recent survey by Juwai – the largest website for Chinese citizens looking to purchase property outside the mainland – suggests these buyers could be coming back.
In fact, 27% of Chinese tourists told Juwai they’ll consider buying a property on their next overseas trip – and there are well over a million Chinese tourists visiting Australia each year.
There’s talk that Beijing’s capital control regulations – designed to keep money being spent at home rather than into overseas markets – are ready to be relaxed. And if this is paired with further signs of a resurgence in Australian property prices, it could mean an influx of foreign investment during 2020.
Property predictions can be fraught. But one thing is certain, multiple forces tugging the property market mean old norms may not play out.