RBA’s ‘heavy lifting’ to carry housing market in 2020

Moody’s Investor Services has said that the Reserve Bank of Australia (RBA) has been “forced to do the heavy lifting” in order to strengthen the weakening national economy, resulting in forecast house price growth but ongoing subdued household consumption.

Record-low cuts to official cash rate by the RBA, coupled with relaxed lending serviceability requirements have resulted in a reversal in housing market conditions at a faster pace than expected by analysts.

The rebound has been largely driven by the Sydney and Melbourne markets, which collectively make up 60 per cent of the nation’s real estate transactions.

However, Moody’s highlighted that growth in the property sector has not been reflected within the greater national economy, as GDP growth is at its slowest pace in a decade, wage growth continued to be largely stagnant, and Australian dollar is down 6 percent in the last year.

Additionally, household consumption continues to be subdued, despite the government’s tax cuts in July.

Consumer sentiment sits at a four-year low, while household debt is at an all-time high, making it highly likely that the majority of consumers’ tax returns were spent on paying down debts, according to Moody’s.

Further, Moody’s stated that as the government has made it clear that more “expansionary fiscal policy of any substance” is off the table due to a preoccupation with the budget surplus, the RBA has been “forced to do the heavy lifting” to get the sluggish economy moving.

By utilising CoreLogic’s Hedonic Home Value Index, Moody’s ruled that, due to market stimulus largely supplied by RBA rate cuts, the property market has already seen its lowest point.

Corelogic data has suggested that the national housing market bottomed out in the June quarter before recording a rise in September, after almost two years of steady decline.

Across the nation, house prices fell almost 11 per cent on average from their peak in mid-2017, while apartments measured a decline of almost 7 per cent from their peak.

According to CoreLogic data, national house price values are on track to fall 7.0 per cent on average in 2019, before rising by 5.4 per cent in 2020, while apartment values nationally are forecast to fall by 3.8 per cent in 2019, before rising by 5.1 per cent next year.

Moody’s has utilised CoreLogic data and its own analytic data to predict expected areas of growth across the nation.

NSW 

Sydney was one of the key drivers of the property market bounce, as apartment values began to see an increase as early as June, followed by house values in July.

Modest growth is expected to continue for both houses and apartments in Sydney; however, it will see a strong year-on-year decline in values overall for the year ending December 2019.

House values will fall an average of 8.4 per cent in 2019, and units are on track to see a decline of 5.9 per cent in 2019, according to Moody’s.

Moody’s also projects that in 2020, house prices in greater Sydney will improve by 7.7 per cent compared with 2019, and a further 7.6 per cent in 2021, whereas units will grow by 7.9 per cent in 2020, and 8.4 per cent the following year.

Analysis provided by Moody’s also suggested that the Sydney market has grown at a faster rate in the past decade than income, population and interest rates would suggest, making the city overvalued relative to the equilibrium value.

The rest of NSW has come out largely unscathed by the market correction, as many Sydneysiders search outside the city for affordable housing. 

NSW (excluding Sydney) is expected to see average growth of 3 percent in 2020, after a 3.7 per cent decline in 2019.

Values are predicted to increase another 6.5 per cent in 2021, according to Moody’s.

Victoria

Greater Melbourne house values have also experienced signs of recovery in the third quarter; however, values remain down 12.5 per cent below their peak.

House prices across Melbourne are expected to hit a 9.2 per cent decline year-on-year for 2019, but will see a 7 per cent increase in 2020 before surpassing previous values in 2021 with growth of 7.8 per cent.

Unit values in Melbourne were less impacted by the falling market, with an expected 1.8 per cent decline overall for 2019, before growth of 4.8 per cent in 2020, based off Moody’s projections.

The rest of Victoria is not expected to see a year-on-year decline in property values; however, CoreLogic data shows that growth has slowed significantly.

Greater Victoria properties achieved growth of 8.4 per cent year-on-year in 2018, and only 0.1 per cent in 2019. However, growth is expected to pick back up again in 2020.

Queensland

Queensland’s market fared a lot better than the rest of the country, but has not been immune to the market downturn, said Moody’s analysts.

Brisbane houses are expected to see a modest year-on-year decline of 1.8 per cent in 2019, followed by an increase of 2 per cent in 2020 and a further 3.7 per cent in 2021.

Units are due to see a similar rate of decline in 2019, then jump up 5.4 per cent in 2020, and another 6.5 per cent the following year.

Moody’s suggests that an oversupply of apartments in Brisbane has stunted their capital growth in the past, but this trend is expected to correct itself in 2020-21.

Outside of Brisbane, Queensland will see a 1.4 per cent decline in 2019, with an increase of 3.5 per cent in 2020 and another 6 per cent rise the following year.

Western Australia

House values in Perth are unlikely to see meaningful growth in 2020, as values will likely decline 7.8 per cent in 2019, followed by a further 0.7 per cent decline in 2020. 

Units in Perth are due to see an 8.6 per cent fall in 2019, and a further 0.8 per cent the following year.

Moody’s anticipates that houses and units in Perth will see growth in 2021.

South Australia

Meanwhile, Adelaide’s housing market will continue its stable run, with house values forecast to fall by a modest 0.5 per cent in 2019 after a 1.9 per cent gain in 2018.

Houses in Adelaide should see an increase of 1.4 per cent in 2020, followed by a rise of 5.1 per cent in 2021.

Tasmania

Tasmania’s market has outperformed the other states in 2018-19, with strong growth of 10.8 per cent in 2018, and expected growth of 4.1 per cent in 2019.

However, Moody’s projects a market correction in 2020 and 2021.

ACT

The housing market in Australia’s capital has continued to slow, with modest growth expected for 2020 and 2021.

Northern Territory

Moody’s highlighted that Darwin dwelling prices has weakened since 2014, aligning with the local economy and employment.

House prices have performed worse than expected this year, suggesting a downward trend to continue into 2020, with an uptick expected for 2021.

[Related: Housing on the ‘rebound’: ANZ Research]