(Realestate) – The housing market is looking better now than this time last year, but our economy is most definitely not.
Inflation and wages growth remain weak and we have seen a rise in unemployment.
No amount of interest rate cutting will stop the trade war underway between the US and China, which will continue to impact Australia’s economic growth if it isn’t resolved soon.
And unlike the previous global downturn last decade, we don’t have a strong enough mining uptick to get us through relatively unscathed.Property Outlook: July 2019
Housing demand is a good measure
Housing demand doesn’t always drop during an economic downturn, although it does depend on how bad conditions get.
Tax cuts, two interest rate cuts, a slow and steady easing of finance restrictions and no change to negative gearing has led to a 25% increase in search activity on realestate.com.au, which is now flowing through to clearance rates and price rises in premium locations.What does property demand mean?
Provided that unemployment doesn’t get too high, this price growth will start to ripple through to our capital cities over the next 12 months.
Growth is unlikely to get to 10% plus per annum any time soon, but moderate growth is likely.
But keep a close eye on unemployment…
What could derail the recovery of house prices? Unemployment.
Right now, unemployment is at a level that isn’t particularly worrying to most people. It has edged up slightly, but at this stage, it seems that buyers of property are more excited about the stimulus that has been put into the market.
In poor economic conditions, many people like to invest in housing – ever heard, ‘as safe as houses’? The volatility of shares in a shaky economy deters many investors and very low interest rates make parking money in the bank far less attractive. Borrowing cheap money on the other hand is much more attractive.Looking to buy? Here’s what you need to know
This is why house prices don’t always go down when times get tough. If unemployment starts to rise dramatically, that’s when things go wrong for property.
Most people can easily cover quite a number of interest rate increases by forgoing holidays, buying a cheaper car or just tightening their belts, but losing a job and being unable to find another one is quite another matter.
Selling an investment property or even the family home can become necessary.
If a lot of people lose their jobs, then this will lead to a dramatic increase in listings and too few buyers prepared to buy. Prices go down and the property market stagnates.
The development industry is doing it tough
We have large, but isolated problems in the development industry.
Over the past five years we have seen record levels of new development in Australia. This was driven by very high levels of investment activity, both from local investors and offshore.
Both groups are now far less active – lending to investors has dropped 45% from peak, while offshore buyers are no longer as interested in Australian property.
With a large buyer group gone, developers have had to switch focus from investors to owner occupiers, which is not always an easy transition and also a much smaller buyer pool for new properties.
Damage like that discovered at Sydney’s Opal Tower is discouraging some buyers.
The other big problem for new development is quality issues that are now emerging. Although a relatively small proportion of new developments have been impacted, particularly compared to how much has been built, it is rocking confidence.
Cracking towers and flammable cladding are understandably making headlines and this uncertainty is causing problems now and will continue to cause problems in the future.