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The Macro Snapshot: Three Property Issues That Every Australian Home Owner Must Know About

By Silvia Wei

For property owners, renters and investors, trying to stay across this year’s big-finance news is like trying to drink from a firehose.

Among other things, a wild few weeks have produced an explosive royal commission, a fresh house price report, a surprise from the mortgage regulator, and a new record set by the Reserve Bank. Despite a torrent of headlines, property-watchers would be forgiven for having a loose grasp on what it all means to them.

So, what’s really been happening? And how does it all affect house prices, rates and access to mortgage money?

Prices: a slide in the first quarter, with further falls to come?
The national median house price dropped 1.2 per cent in the most recent quarter, pushing the annual growth rate to its lowest level since 2012 and there may be a few more lean results ahead.

Capital Economics chief economist Paul Dales sees a national house-price correction lasting two-to-four years, and trimming about 10 per cent from current levels – Sydney and Melbourne could be 25 per cent overvalued, Dales says.

Paul Dales, Chief Australia & New Zealand Economist, expects a national house-price correction lasting two-to-four years. Photo: Peter Braig

“The question is: how is that resolved?

“It can be resolved by house prices falling sharply, or by a steady period of very small house-price falls and rising income growth, which is the scenario we’ve gone for,” Dales says.

And a weak-to-flat outlook for house prices seems to be being adopted by more than a few experts.

AMP chief economist Shane Oliver expects a five per cent “or so” fall in Sydney and Melbourne property prices this year, and another five per cent ‘haircut’ next year, while Morgan Stanley told clients this week “it is clear the housing market has turned” as it predicts weakness for the rest of the year, at least.

Mortgages: the banking watchdog just made a surprise move

The past few years have seen banking regulator APRA take a carving knife to the mortgage market.

Investor activity dropped significantly as a result of restrictions placed on investor and interest-only loans since 2014, with first-home buyers taking advantage of the situation. However, April 26 saw APRA chairman Wayne Byres scrap the cap he had placed on investors three years earlier, ostensibly opening the door for a comeback.

A huge free kick to investors, right? Maybe not.

APRA Chairman Wayne Byres set tongues wagging in April when he scrapped the restrictions placed on investor and interest-only loans in 2014. Photo: Louie Douvis

Byres says he thinks the temporary measure has served its purpose, and that a “more permanent” plan will follow in the wake of a damning royal commission into banking.

Different is unlikely to be better for investors looking for a mortgage, according to UBS and JP Morgan economists, who see the mortgage market as in line for a shake-up.

“We have emphasised that likely removal of that measure should not be viewed as an easing of conditions, given that the tighter loan criteria that have generated weaker house price and credit growth outcomes are here to stay,” JP Morgan economist Ben Jarman says in response to the news.

“APRA’s press release confirms this, and now suggests that even tougher measures are being introduced, with loan/debt to income restrictions now being developed.”

Watch this space.

Rates: RBA rates expected to remain on hold

Amid all this action, the Reserve Bank has been holding tight, keeping interest rates on hold in its longest-period without a hike or cut in 22 years.

And, while almost no consensus exists between the economists, few expect a move any time soon.

The RBA has kept interest rates on hold for its longest period in 22 years. Photo: Rick Rycroft

Specifically, Commonwealth Bank expects it this year, UBS predicts late 2019, and AMP forecasts no move until 2020.

“We had been expecting the RBA to start raising rates in early 2019 but with the further tightening of bank-lending standards effectively doing the RBA’s work for it and growth likely to remain below three per cent and inflation around two per cent for now we don’t see an RBA tightening until sometime in 2020,” Dr Oliver forecasts.

However, clearly, the property market isn’t short of key players while the Reserve Bank sits on the sidelines.

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