31 October 2019

Sound News October

1. QBE Economic 2022 forecast

QBE, Australia’s second largest global insurer, recently published their predications for some key economic indicators in 2022. Amidst current talks of further rate cuts, QBE suggest increased inflationary pressure will see the cash rate start to rise again by 2022, with the Consumer Price Index (CPI) heading back towards the target 3% growth range. Gross Domestic Product (GDP) is expected to increase from 2.1% to 2.9%, while unemployment is trending down from 5.1% to 4.8% in 2022.

Source: QBE

2. Investor loans grow at fastest pace in three years

Investor home loans have grown at the fastest pace in close to three years adding weight to the Reserve Bank’s view that interest rate cuts are creating a “gentle turning point” in the economy. 

Housing Industry Association economist Tom Devitt said the stimulus was clearly rippling through the property market. “The first two RBA interest rate cuts, along with income tax cuts and APRA’s loosening of lending restrictions, appear to have started supporting the housing market with market confidence slowly returning,” Mr Devitt said.

The strengthened appetite for lending, focuses more on established homes, has yet to flow through in a meaningful way to new dwelling construction.

Earlier this month Australian Bureau of statistics figures showed new investment mortgage loan commitments have jumped 5.7% from July to $4.9b. This was faster than July’s 4.2% jump, meaning August was the largest month on month increase since September 2016.

According to JPMorgan economist Sally Auld, rate cuts will “further aid the narrative of a gentle turning point in the economy in the second half of 2019.”

3. Opportunity abounds – Brisbane house market

Brisbane’s housing market did not see the same magnitude of price growth over the last boom compared to Sydney and Melbourne. With less strained affordability, the detached housing market has avoided a dramatic downturn compared to the other eastern capitals. 

Driven by non-mining sectors Brisbane has led the way in economic recovery for QLD. Improved employment growth and opportunity has pushed population growth since 2015, with QLD attracting stronger net inflows than any other state or territory. With underlying demand expected due to the decline in new dwelling completions starting in 2018, the Brisbane market is forecasted to move back to an undersupply within the coming year. 

The Brisbane economy is forecasted to continue to improve. The lower Australian dollar is boosting the local tourism and education sectors and a number of large building and infrastructure projects, including the Queens Wharf precinct and Cross River Rail, are underway.

Brisbane continues to maintain a significant affordability advantage over other east coast capital cities, and as employment prospects improve, demand from home buyers who are priced out of these cities is expected to increase. 

After a modest rise in 2019/20, median house price growth is forecast to accelerate from 2020/21 as the dwelling undersupply is absorbed. Median house price growth is forecast to average 6.4% per annum over the next three years, taking the median house price to $660,000 in June 2022.

4. Interest rate cuts and reduced supply a positive push for prices

All capital cities are expected to stabilise by 2020 after experiencing declines or slowed price growth. Lower interest rates in combination with easing lending serviceability buffers expected to aid borrowers. Markets should tighten, increasing prices by 2020/21 as a result of a sharp downturn in new dwelling completions and strong population growth.

Property prices are expected to continue to be supported by further employment growth and a low unemployment rate, as well as cuts to interest rates. This is expected to support borrowers and put a floor on prices before assisting price growth as new supply starts to fall away.

The strongest outlook for property prices is forecast for Brisbane, the combination of rising population growth and rapidly falling supply levels will allow for residential price growth, accelerating through to 2021/22.

In both Canberra and Adelaide, with conditions predicted to remain steady, the recent moderate price growth is forecast to continue. The worst appears to have passed for the Sydney and Melbourne markets, but upside over the next three years remains limited. Despite some easing in the assessment of mortgage serviceability by lenders, more rigorous assessments of income and expenses in loan applications are predicted to continue to impact growth in credit and therefore the rate of property price growth. After strong rises over the past four years, price growth in Hobart is now slowing due to affordability constraints. 

The Perth and Darwin residential markets are forecast to remain weak in the short term, but by 2021/22, an upturn in property prices is projected to emerge as their dwelling oversupplies are absorbed and the improved affordability provides a trigger for price growth as economic conditions begin to strengthen.

This article is provided for general information only and does not constitute personal advice, as it does not take into consideration your personal circumstances. Please consult a licensed tax or financial advisor before making any decision to invest. Past performance is not a reliable indicator of future performance.