SQM Research has released its Housing Boom and Bust Report for 2020, which provides forecasts for what would happen to housing market growth across Australia in four separate political and economic scenarios.
The report author and managing director of SQM Research, Louis Christopher, highlighted the sharp recovery already experienced in the Sydney and Melbourne markets, particularly in light of the federal election result, interest rate cuts and the loosening of lending restrictions.
He expects these factors to continue to drive market growth across Australia’s capital cities in 2020.
Further, he anticipates 2020 to bring meaningful improvements to the housing markets in both Perth and Brisbane, which have both experienced prolonged periods of decline.
The report also anticipates Darwin to be the only capital city to continue to see declining values into 2020.
Notably, Mr Christopher expects APRA to hold back on residential lending curbs for the time being, pushing potential 2020 market national growth figures into the double digits.
“In a close call, APRA is expected to not immediately intervene despite the strong price rises,” Mr Christopher said. The regulatory body, however, has publicly promised to vigilantly monitor the market in an ongoing capacity.
The base scenario of the report assumes both that APRA holds off on intervening in the market until at least the end of 2020, and that the RBA does not make further cuts to the official cash rate.
The base scenario projects that capital city dwelling prices would rise between 7 and 11 per cent, according to the report.
The base scenario forecast assumes the current economic climate continues on into 2020, such as official cash rate remaining unchanged at 0.75 per cent, and the relative stability of the Australian and international economies, with the Australian dollar sitting between US$0.65-US$0.75.
This scenario could see Sydney’s house prices jump up 10 to 14 per cent, and Melbourne up to 15 per cent.
With stable conditions, Perth could finally recover from a prolonged decline, with increases of between 3 and 6 per cent in this scenario.
The report suggests that in this scenario, Adelaide could see growth of up to 4 per cent, whereas Darwin could slow its rate of reduction in values to just -2 per cent.
However, industry stakeholders and economists would not expect this scenario to take form in 2020, with many of the belief that the RBA will continue to cut rates in 2020, in an attempt to reach full employment.
Further, increasing rates of investment in the housing market is likely to see APRA take regulatory measures to curb residential lending
Scenario two is based on the assumption that the RBA cuts the official cash rate to 0.5 per cent by April 2020, that international trade disputes are tentatively stabilized, with the Australian economy also remaining relatively stable.
As with the base scenario, it also based its projections on the assumption of no APRA regulatory intervention in the property market in 2020.
This scenario could see combined capital cities experience growth of between 8 to 13 per cent in 2020, according to SQM Research.
In this scenario, Melbourne could see growth of between 12 and 17 per cent in 2020, with Sydney dwelling prices increasing up to 16 per cent.
Perth could see growth of between 4 and 7 per cent, after six years of decline, and Hobart up to 9 per cent.
Darwin could curb its losses down to -1 per cent in this scenario.
The third scenario is similar to the base scenario, in that its projection is based on no changes to the official cash rate, and the Australian dollar sitting largely where it does now in comparison to the US.
However, this scenario assumes that APRA introduces regulatory curbs to residential lending mid-way through 2020.
In scenario three, combined capital cities could see growth of between 4 to 7 per cent, lower than the previous two but still relatively strong growth projections.
Melbourne could experience growth of between 5 and 9 per cent, and Sydney between 4 and 8 per cent.
In this scenario, Brisbane could experience an increase of up to 6 per cent in dwelling values, and Adelaide up to 4 per cent.
Darwin would see losses of between -5 and -2 per cent with the scenario three conditions, according to the report.
The last scenario, scenario four, is the worst-case scenario.
For this projection to come to light, international trade negotiations would need to collapse, with the worldwide economy weakened in suit.
It further assumes that the RBA would cut the official cash rate to zero by the end of 2020, and push an expansionary quantitative easing policy.
In this scenario, combined capital cities could see average house prices drop by 1 per cent, or otherwise grow up to 3 per cent.
Melbourne and Sydney might see stable prices, or growth up to 4 per cent, and Hobart could experience an increase of up to 6 per cent.
Darwin could see decreases of up to -7 per cent, whereas Canberra could see growth of up to 7 per cent.
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