In today’s show, together with Dr Andrew Wilson, we take an overall look at the national property market.
Kevin: As we wrap up a pretty big show, having taken you all around Australia, let’s have a look at a national overview, not market-by-market. Joining us to do that, the Chief Economist from the Domain Group, Dr. Andrew Wilson.
Andrew, I know it’s a difficult task to talk about a national market, but what’s your view nationally and any issues that you may even see state by state?
Andrew: Look, Kevin, certainly we’ve started the year better than where we left it last year. Generally, housing markets have shown some renewed energy. Of course, that Sydney market has been strong, now entering its third year of boom time conditions. But I think the cut in interest rates over February really worked its way into confidence.
There wasn’t obviously much of an improvement in affordability with that 0.25% drop in rates and mortgage holders just got a little bit of relief in terms of their balance sheets, but I do think it’s worked its way into confidence.
We’ve seen strong auction activity all the way down the Eastern Seaboard – Brisbane, Melbourne, and Sydney all with near-record numbers of auctions for this time of the year, and certainly higher clearance rates. That Sydney market keeps churning out those 80%-plus weekend rates, and Melbourne even recorded an 80% rate there, though February tracked back into the mid-70s.
Look, Melbourne, Sydney, and Brisbane certain started off on the front foot this year. I think increased confidence from those lower interest rates has worked its way into those housing markets and offsetting, obviously, concerns about our economic issues.
I also our other capital city markets are doing reasonably well. Adelaide, certainly middle bar, middle price ranges and upper price ranges in Adelaide continue to be quite solid as they have been over the last year. Canberra similarly, and even the Hobart market is picking up now and looking to have a good year.
Those markets have been in catch-up mode to some degree over the last few years, but I think gradually we’ve seen confidence and those perceptions of still good value buying in those markets and driving changeover activity. I think they’ll have another couple of solid years or another solid year for those Adelaide, Hobart, and Canberra markets.
Perth has been flat – no surprise there. It’s had a real shakeout in the local economy, the end of the mining boom, and we’re seeing a fall in iron ore prices, too, which is a little concerning for that local economy, and that will work its way back into the housing market.
But I’m not as pessimistic on Perth as a number are this year. I think it will be a flat year, but I’m not sure the prospect of falling house prices are realistic. There’s still a lot of first homebuyer activity in that Perth market, and even though certainly the economy is not performing as well as it was a year ago or years before, it’s still quite a reasonably strong performance from that economy.
Look, generally a better start to the year for most housing markets. Lower interest rates work their way into confidence. Of course, it is the local factors that are driving markets. Investors still at record levels in Sydney, and with lower rates, that’s likely to continue. It really is mid-price to upper-price range market driven activity levels in most capital city markets with those budget price sectors still a little flat except in the Sydney market.
Kevin: Just before talking to you, we were talking to George Raptis and his rap on the Sydney market. It almost seems to me as if the politicians are scrambling to get some kind of solution, because that’s obviously a market that would seem to me – my words – out of control.
Andrew: It is a very strong market, Kevin. Third year of boom time conditions in prospect now. If anything, the market lifted this year compared to last. It’s even tracking higher than where it was a year ago, which was coming off of those extraordinarily strong results at the end of 2013.
Look, another strong year in prospect for the Sydney market. Strong local economy, very high levels of migration due to that market, and of course, the thing that drives the Sydney market is an under-supply of property.
That keeps pressure on rents, on prices, it keep investors interested, and the changeover buyers continue to be active in the market, and why wouldn’t they be seeing those double-figure price rises year on year.
It’s no surprise in an election environmental that New South Wales has been in that politicians are starting to tap into some of the concerns of perhaps unsustainable prices growth in the Sydney market – the perceptions, anyway, of unsustainable prices growth – and also trying to get more first homebuyers in the market.
Look, I’m not a great advocate for demand-side policies, in other words, throwing money at buyers who are disadvantaged. I think we have to really increase supply in the Sydney market. That’s the big problem, and unfortunately, that’s really going to be a long-term journey to get supply up to demand.
Even the announcement of tens of thousands of new building blocks in the outer fringe of Sydney is really not going to address the problems in terms of first homebuyers because a lot of those new home and land packages are being snapped up by changeover buyers.
Kevin: We’re almost out of time, Andrew, but I know all eyes are going to be on the RBA, the announcement coming out this Tuesday. Any tip on that before you leave us?
Andrew: Look, the economy really needs to have more stimulus, it’s restricted in terms of fiscal policy with the high government budget deficit, so we can’t really spend our way out of trouble. It really has to be monetary policy that does the heavy lifting.
I think we will get more cuts in rates, but there is a threshold below which I believe we can’t go – it becomes a negative for the economy with low interest rates – and that’s probably about 1.5%, but I do think there are a couple of interest rate cuts in the gun. A lot will depend, of course, on how the economy performs, so we need to watch those unemployment numbers, and hopefully they’ll start to go down.
Kevin: A question I’ve asked of everyone in the show this morning is if you had $500,000, where would you be spending it? I’m going to ask you that question but ask you to couch it in terms of whether you would spend it in a cap city market or whether you would look at the regional markets anywhere in Australia?
Andrew: We’re seeing some regional markets certainly activate – Wollongong is very strong at the moment – but that Sydney market keeps on keeping on. A lot of enthusiasm and confidence – in fact, record levels of confidence and enthusiasm – keep driving that market.
I think entry-level property in Sydney will remain a very good bet, because first homebuyers and investors are really fighting it out in that market, and I think we’ll continue to see prices growth at still a reasonable entry level into that very strong Sydney market, which will continue to outperform all other capital city and regional markets, in my opinion.
Kevin: Always good talking to you, Dr. Andrew Wilson, Chief Economist with the Domain Group.
Thanks for your time, Andrew.
Andrew: My pleasure, Kevin.