Commentary on the current state of the market released by the Housing Industry Association (HIA) said the market has found a stable state of “new equilibrium”, although prices remain far below their peak.
HIA chief economist Tim Reardon weighed in on the current state of the market, in light of market stimulants that saw residential lending hit the bottom of its recent trough in April of this year.
“New home sales, approvals and housing financing data all suggest that the demand for detached homes has stabilised, albeit well below levels of the past five years,” Mr Reardon said.
“Total lending is up from a low point in April 2019. This result is mirrored in new home sales data, which also shows April as the bottom of this cycle.
“The upturn since then has been very modest and best described as a stabilisation in conditions.”
While market conditions have curbed their downward trajectory, Mr Reardon is not expecting to market growth that sees home values return to their recent peak as of yet, instead maintaining a stable state of “new equilibrium” and responding to local population growth.
“We do not anticipate that the market will recover the ground lost over the past year. Rather, the market is calibrating to a new equilibrium consistent with demographic growth,” he said.
While the market has shown signs of improvement, Mr Reardon sees access to credit continuing to be the main barrier for first home buyers entering into the market, which has knock-on effects into the residential construction sector.
“Three cuts to interest rates, income tax cuts, and the easing of APRA restrictions are having a positive impact on confidence.
“Even with the easing of lending restrictions, access to credit remains the biggest impediment to further improvements in home building activity.”
HIA data shows that residential housing construction is set to continue falling, a prediction that others have also anticipated, due to the intrinsic lag between housing market conditions and new home construction, as well as negative sentiment towards off-the-plan apartment building.
“The new detached home market is forecast to fall from 111,701 in 2018-19 to 102,126 in 2019-20, before a smaller contraction in 2020-21 to 101,087 to levels experienced in 2013-14.
“Apartment commencements are likely to pause until those apartments that are currently under construction are completed and occupied.
“This will see multi-unit commencements fall from 85,108 starts in 2018-19 to 72,549 in 2019-20,” Mr Reardon concluded.
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Hannah Dowling is a journalist for mortgage business, the leading source of news, opinion and strategy for professionals working in the mortgage industry.
Prior to joining the team at Mortgage Business, Hannah worked as a content producer for a podcast catering to property investors. She also spent 6 years working in the real estate sector at a local agency.
Hannah graduated from Macquarie University with a Bachelor of Media and Journalism.