Housing Conditions: Review of 2019 & Forecast for 2020

In 2019, although we saw a rise in housing values and selling conditions, housing turnover fell to record lows, interest rates dropped to rates never seen before and the concentration of investors in the market also declined to new depths.
 

A small 4 per cent of dwellings in Australia changed ownership from September to November 2019, in comparison to the decades average of 5.3 per cent, according to a recent report by CoreLogic.
 

Various factors contributed to the record low turnover including low consumer sentiment, high transactional costs, and low inventory levels which has kept sales low despite a lift in buyer demand. Turnover in 2019 was at 3.9 per cent in Victoria and 4 per cent in New South Wales. Tasmania showed the highest turnover rate at 5.1 per cent.

Australia’s housing market moved through the largest and longest correction on record, which was followed by a quick recovery in values during the second half of the year. According to Tim Lawless from CoreLogic, the major contributors to the recovery of housing conditions were:

•   The positive effect of the federal government retaining power at the May federal election, which reduced the uncertainty around tax reform relating to negative gearing and capital gains discounts;
 

•   Cuts to the cash rate in June, July and October; and
 

•   An easing in lending policy as APRA adjusted its rules around minimum interest rate serviceability tests; a move which acknowledged interest rates were likely to remain low for an extended period of time. 

In 2019, first home buyers took advantage of improved housing affordability as well as stamp duty exemptions. First home buyers made up just under 30 per cent of owner-occupier mortgage demand in September. Worsening housing affordability and increased competition with investors is likely to have a negative impact on first home buyer activity in the market in 2020.

Forecast for 2020
 

In 2020, we are likely to see markets in recovery mode as housing prices begin to rise, however, the rapid rate of capital gains seen over the second half of 2019 may begin to fall as stock levels increase and affordability deteriorates.
 

The pace of growth was rapid for housing markets in Melbourne and Sydney in late 2019, although a slowdown in growth is likely during 2020.
 

Housing demand is forecast to remain strong with overseas migration the primary driver of population growth in our nation.  
 

Australia’s population increased by nearly 390,000 over the year to March 2019, which was 21 per cent above the twenty-year average. The trend in population growth is set to continue to rise steadily.
 

Considering additions to housing supply are likely to remain low, there may be a gradual imbalance between housing supply and demand, according to a recent report by CoreLogic.

Regional cities such as Newcastle, Wollongong and Geelong are likely to benefit from increased demand as buyers seek to find affordable housing options in areas with a diverse economy, as well as transport options to major cities.

With interest rates remaining low and advertising housing stock likely to rise, the number of dwelling sales is likely to increase further in 2020, although the volume of sales is not likely to exceed the highs of 2015 due to worsening affordability and tighter credit conditions. 

Interest rates are likely to continue to fall in the first half of 2020. Mortgage rates fell to a record low in 2019 and it is likely that they will continue to decline. Low mortgage rates are likely to support a rise in buyer demand, although the declining interest rate could have the opposite effect.