Is the macro-economic picture for house price in Australia quite gloomy?


Macroeconomic factors not only impact the growth of a country or economy but also deal with the general performance of the economy as a whole. Building more housing was supposed to be a great fix for the heated property market segment but it’s not been as effective as expected — and there’s one significant reason for that. In the past few years, Sydney has undergone its biggest housing construction boom, with over 200,000 houses expected to be built in five years commencing from 2016. However, the landscape has changed a bit and the city was said to be at the risk of a bubble given the prices soaring ahead of the income growth. Sydney’s housing prices plunged in 2015 – 2016 but again soared in a short span of time, while the prices rose over 10% in the last one year. But in late 2017, the momentum that picked up again was fading away gradually. Many experts were seen to mention that house prices in Sydney were 30% over and above their historical fair value. Melbourne was another zone that underwent a similar boom after its house prices rose by 50 per cent. But a NSW parliamentary inquiry into land release and housing supply have revealed that the massive construction projects have had a minimal impact on prices in the state. The recent data shows that Australian house prices have fallen by 1.2 per cent over the last quarter and Sydney witnessed 2.6 per cent fall from median house prices in the March quarter while Melbourne was 0.1 per cent higher in the quarter.

The recent decline in the demand for housing, relative to the supply available is consistent with house prices continuing to decline in the coming months. While prices may only edge lower this year and next, higher interest rates will probably mean they fall more sharply in 2020 and 2021.

Based on the monthly data, the number of commitments for owner occupied housing finance fell 0.6% in February 2018 while the number of commitments for the purchase of new dwellings fell 1.0%, the number of commitments for the purchase of established dwellings fell 0.6% and the number of commitments for the construction of dwellings fell 0.1% (all in trend terms).

Looking at the house price inflation as provided by CoreLogic, the same has slowed from 11.4% in May of 2017 to 0.8% in March 2018. The house price inflation may witness a rebound based on some changes in tax policies. At the moment, many Investment analysts have predicted for a 7 per cent fall in house prices over the next 18 months, in view of RBA’s data on households.

On the other side, demand from infrastructure spending by governments and other organizations in Australia and New Zealand is expected to be strong in the next few years, although residential housing might be sluggish. All in all, the house prices are expected to be under a drench zone for few more years and any favorable policy change may give a different dimension in the coming period.


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