Australia Housing Outlook 2009 (ANZ Summary)

The outlook for the global economy has stabilised however the recovery is expected to be slow. The Australian economy has fared one of the best of the global economies and has thus far avoided a technical recession, although I believe the pain is still very real here. Economic growth in 2009 is likely to be slow; however the ongoing government stimulus along with the improving Chinese demand will help stimulate the economy moving forward. It is important to note that the report does not mention that Australia’s economy would continue to fall… they are expecting growth, albeit very small for the 2009 year.

The Australia housing market has performed significantly better than other developed economies around the world. According to Residex it has softened by 1.2% to the month of May 2009, while RP Data suggests that there has been no change to house prices. After interest rate cuts and government assistance with the first home buyers boosted grants, there are even signs of price movement upwards.

ANZ suggest that the Australian housing market will be tested over the medium term on a number of factors. These include:

• Housing Affordability to test record highs because of government stimulus at both federal and state level as well as low interest rates, which may even be cut further. The market will be tested by home ‘upgraders’ (those that are buying their 2nd or 3rd property) and property investors.
• Population growth is at its highest levels in 4 decades. This high population growth is creating a high demand on dwellings which has consequently been proved by very low vacancy rates.
• Housing Supply – There has been a slow down in the development of new housing due to a subdued market, financing difficulties, and higher development costs
• Labour market – the uncertainty of the labour market and where unemployment may fall to is leading some market commentators to think that there may be a lack of confidence in the housing market as home buyers don’t wish to commit to large mortgages when they have uncertainty in their employment, thus reducing demand on housing and housing prices. ANZ state this is probably a second-order influence on housing market outcomes.

ANZ state, “We expect dwelling prices to edge higher for much of the remainder of 2009 with upside risk presenting from intensification of strong fundamentals, a shift in price expectations and a restoration in market confidence.

ANZ Market Balance - June 2009

ANZ Rental Vacancy Rate June 2009

ANZ Affordability June 2009

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The Australian property market has seen a glut in new build properties over the last few years as high interest rates, slow paced property markets and more recently stricter lending policies by the banks, have forced the industry into a dramatic shortage of new properties. This is all about to end according to the Housing Industry of Australia… and its about to end as soon as this year. Recent statistics released by the HIA states that the HIA forecasts the total number of completed homes in Australia will rise from 129,500 in 2009 to 139,200 homes in 2010. According to the HIA there were 141,000 completed homes before the onset of the global recession slowed construction and lending to the sector. Chief Economist of the HIA, Harly Dale says “The effect of the First Home Owners Grant boost, along with 49-year-low interest rates, will cause the housing sector to “grind out” a recovery in the middle of the year”.

Having stated that construction will rise, they still confirm that Australia will have a mass shortage of housing for many years to come. Harley Dale, said “Given the outlook for a modest rather than significant recovery in new home building, the shortfall between dwelling completions and underlying demand will exceed 50,000 dwellings per annum for some years to come.”

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The Reserve Bank of Australia has stated that Australia’s recession could be over by Christmas. A recovery may be on the agenda as confidence and economic activy returns to the market on both a globa scale and locally in Australia. They aslo believe that the worst of the global gloom may then be behind us aswell.
Backed by strong signs of improvement in China, the local economy could show signs of recovery as Australia is China’s larget trading partner. This backed up with certain local stimulas packages has resulted in consumer confidence increasing slightly too.
The RBA have stated that “In the case of the Australian economy, members observed that there were signs that the economic stimulus that had been applied was supporting demand. Nonetheless, substantial growth was not expected to resume until around the end of the year.”
So if the Reserve Bank of Australia is eyeing any sort of recovery in the pipeline the likley hood of any furture interest rate cuts in the short term will be relatively low. That being said, if the economy doesn’t start to improve or remains weighed down, then the RBA will be forced to cut rates further in the second half of the year.

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