Our guest today: Dr. Andrew Wilson, senior economist at the Domain Group.
Kevin: Well, a little bit more crystal-balling in the show. This time, I’m talking to Dr. Andrew Wilson, senior economist at the Domain Group.
Andrew: Hi, Kevin. How are you?
Kevin: Well, thank you. Let’s have a look at 2016. First show for the year and we are, in fact, doing exactly that. What’s your feeling about the market based on what we saw at the end of 2015?
Andrew: I think we’re going to continue to see, Kevin, a flattening, generally, of house-price growth levels. We’ve had big surges in that Melbourne and Sydney market particularly over the last year or two and clear signs that that has come to an end through 2015, particularly the impact of those higher interest rates that we got in spring.
I think that we’ll just see a continuation of flatter activity levels, flatter demand, right through the spectrum, and it is that convergence of house price levels between capital cities that will be most evident this year.
Of course, however, there will be, I guess, the better performers and those that haven’t been performing that well, and that will continue to be those resource states where long-term economic issues are now impacting housing market activity in those states. We’re talking particularly of Perth, Darwin, and to a lesser degree, Brisbane.
Kevin: Andrew, fast-forward through to January 2017. What do you think we’ll be saying about the year 2016?
Andrew: It’ll be less exciting in Sydney, particularly, and Melbourne in terms of the discussion points, and I think the outcome that we’re likely to see going forward is a much flatter cycle. I think that would have been validated through 2016, where prices growth on a quarterly basis really would have been around about the 1%, just a bit above or below the 1% mark per quarter depending on seasonal factors.
I’m not sure we have much wiggle room left in interest rates, and any more cuts in interest rates would likely be a negative rather than a positive. We’ve seen continuous low growth in the economy.
This is the future of really all our economies, national and state economies, reflecting what’s happening internationally, of course, and with low inflation and low incomes now translating into less of a cyclical element to house price growth. I think that’s what we would have seen crystallize over 2016, a much flatter cycle.
Kevin: Andrew, I doubt that there would have been, but were there any moments in 2015 where you said, “Hey, I didn’t see that one coming”?
Andrew: I think Brisbane was a little bit of a disappointment through 2015. I think we didn’t realize the impact, particularly in those outer suburban areas, that declining economic activity had had generally and notably on confidence. The Brisbane market, really after an early positive sign particularly from mid to higher price ranges, just failed to take off. I think it was, again, those outer suburban markets that kept the market largely moving sideways in terms of prices growth, but that was a surprise outcome.
Of course, I guess nobody really could have predicted how strongly that Sydney market would have grown given those two cuts in interest rates last year in February and May. That certainly got the Sydney market into lift-off and ready to go into outer space, Kevin, with some remarkable numbers. But, of course, it’s come way back to the pack since then, and we’ll look back on those remarkable first six months of 2015 in the Sydney market.
Kevin: Yes. Of course, this is not the first time it’s happened, is it? Sydney has done that on so many occasions where it’s had these massive highs and then just goes into a massive low.
Andrew: Look, we have some different economic factors. Most capital cities had strong house price growth in early 2000. Sydney, of course, that was its peak boom period – the early 2000s. Even though it was very strong in 2014/15. It didn’t have quite the depth of prices growth that it did in 2002 through to 2003, but still nonetheless, it was a very similar period.
But different economic drivers followed that Sydney burn, then, when you had really an exodus of the population out of Sydney and New South Wales through the early 2000s, mid-2000s, and that really did dampen demand for housing. I think what we’re seeing now is more of a generalized driver based on incomes growth and low interest rates, which will be different and will be more consistent through all the capital cities.
Sydney still is an undersupplied market despite those high levels of new apartments coming through, so demand will, I believe, remain ahead of supply in the Sydney market. It’s just the capacity for prices growth is now constrained, as it is through all capital city markets.
Kevin: What are the markets you’re going to be keeping an eye on during 2016?
Andrew: Adelaide always remains a remarkable market, Kevin. In a way, Adelaide has been a pointer to the future for a lot of our housing markets, particularly those underperformers in Darwin and Perth, because the Adelaide market really shrugs off those short-term hits to confidence.
It remains the underperformer in terms of economic activity. South Australia and Adelaide has the highest unemployment rates. It also has the highest levels of net interstate migration, so it actually loses people out of the state, out of the capital on a consistent basis.
Nonetheless, confidence remains in the housing market. There’s still demand for bigger houses, smaller houses, houses in other regions, and that housing market just keeps ticking over despite all the negatives, particularly those economic negatives. I think it reflects the fact that confidence is a short-term driver of the market and that people generally pick themselves up and get on with the business of buying and selling houses.
I think that’s a model for particularly those resource states that have been struggling with economic issues in the shorter term, but the Adelaide market reflects that very strong underlying connection to housing over the long term that Australians have.
Kevin: Andrew, thank you for your time.
Andrew: My pleasure, Kevin.