Suddenly, I’m no longer the only one excited about property…
If you’ve learnt anything from these blogs, I hope it’s that in the property market, sentiment matters.
What everyone thinks will happen will tend to happen. Economics is largely the study of self-fulfilling prophecies.
That’s why it’s interesting how much the mood in the property market has shifted, in a matter of days – since the Coalition’s shock election upset.
Suddenly, it’s a brand new ball game, and the breadth of the consensus is really shocking. You don’t see market conditions like this that often – when every market player and their dog is projecting a strong swing in the cycle.
First up it was Harry Triguboff. Harry’s never shy about talking his book up, but you can hear the joy in his voice. From the ABC’s The Business:
Billionaire apartment developer Harry Triguboff could not hide his delight at the prospect of an interest rate cut in June and the re-elected Morrison Government’s planned help for first home buyers.
“I won’t have to discount anymore,” he told The Business.
“I sell now probably at a 10 per cent discount and, besides that, I give [buyers] money at 3 per cent and help them with the stamp duty, so I think at first I should be able to get the full price.”
“It will be very good, it will be a great help to the real estate market which has been very weak, and I think it will give hope or it will give the people the confidence to buy, not to pull out and not to think,” he said.
He believes that there is now a floor-in-the-housing market and “we’ve definitely seen the bottom”.
“I can already feel the difference,” he told the program.
Exactly. I can feel the difference too.
Meanwhile, the financial papers have started their own cheer-leading, like Chris Joye at the AFR:
If the Reserve Bank of Australia cuts its cash rate twice – with the first likely at its June meeting – I expect national house prices will climb at least 5 to 10 per cent over the 12 months following the final move…
…Our analysis indicates that APRA’s change will enhance this person’s borrowing capacity by 14 per cent, with the impact growing as home loan rates fall. If the RBA cuts twice and the cheapest home loan rates fall from, say, 3.5 per cent to 3.0 per cent, our analysis suggests that borrowing capacity will lift by 20 per cent.
If borrowing capacity jumps 20%, you can expect nearly all of that to feed through into prices. Is a 20% boom in property prices really on the cards? … possibly.
The research companies are also changing their tune. SQM Research is calling a bottom:
Readers of our 2018/19 Housing Boom and Bust report should now be put on notice that our Scenario 4 (a Liberal victory with interest rate cuts late in 2019) are now in play.
…That means it is likely the national housing market will record a price fall for this calendar year of between -1 to -4%. This is less than our Scenario 1 forecast which tipped a -3 to -6% price decline.
We believe the Liberal victory means increasing buyer confidence in the market which was severely lacking as a result of the anticipation of the change in negative gearing and capital gains tax by a Labor Government.
At the same time, the money guys at the institutional funds are doing a quick about face as well. Like Shane Oliver at AMP:
The negatives weighing on Australian residential property prices remain significant but the past few weeks have seen a number of developments that suggest that prices could bottom earlier and higher than we have been expecting. The election outcome removed a key threat, but several other factors also help.
…Our forecasts for national average prices have been for a price fall of 15% top to bottom (of which we have done 10% so far) and for Sydney and Melbourne it’s been for a price fall of 25% top to bottom (of which Sydney has already done 15% and Melbourne 11%) and for prices to bottom in 2020.
Reflecting the considerations discussed above – notably the removal of the threat of changes to negative gearing and capital gains tax, imminent rate cuts, assistance for first home buyers and APRA’s relaxation of the 7% serviceability test – we are revising the estimate for Sydney home prices to a 19% top to bottom fall, Melbourne to 15% top to bottom (partly because it has been holding up much better likely reflecting stronger population growth) and the national average to 12% top to bottom with prices likely to bottom by year end.
While at Citi Bank, a picture tells a thousand words:
“We’ve upgraded our house price forecasts. We now expect house prices to show year-on-year growth of 3.0% by December 2020.”
This is a zeitgeist. When everyone in the market is expecting the market to pick up, you can pretty much bank on it.