we have answers.
On 9th May Rapsey Griffiths hosted Australia’s leading independent property economist, Dr Andrew J. Wilson, at an event in Newcastle. Dr Wilson presented a compelling and comprehensively researched talk on the macroeconomic drivers of the national housing market, and its implications for the current and future state of Newcastle property prices.
Here are our takeaways from the event:
1. Welcome to the new economic reality
The market ups and downs of the last decade are gone, and the economy is entering into a period of potential flatline. Wages, incomes and jobs no longer track together as they once did. Prosperity is low, there is little real wage growth and domestic consumption is stagnating. People are spending their savings just to survive.
2. Interest rates unlikely to rise
Despite the predictions of the pundits and the foreshadowing of the Reserve Bank, an interest rate rise seems highly unlikely. Instead, market signals indicate another measured cut may be on the cards, with the era of low rates to continue.
3. High migration keeps everything ticking along
Although down slightly from its high, migration remains at near-record levels, helping uphold demand for property in both capital and regional centres. Whoever holds power after the May election, migration will remain a fundamental driver of the housing market, although its small decline has impacted growth somewhat.
4. Nothing to fear but fear itself
The biggest influence on the recent downward movement in the market is confidence. APRA’s moves successfully scared off investors, and a collapse in new home building has proved a significant drag on growth. The Sydney market is readjusting after an extraordinary run; positive results are now emerging, and the underlying drivers remain strong.
5. Units – safe as houses?
Sydney house prices are down following its boom, but the big surprise is that units are holding their value better even at peak supply. Despite fewer investors, developers are holding on to stock rather than discounting.
6. The decline of the investor
Investor market share is down almost 4% from its long-term average, opening a window of growth in owner-occupiers (at 51.6% compared to 41.2% long-term average) and first home buyers (up to 12.6% over a long term average of 11.5%).
7. Sydney and Newcastle prices tracking closely – with one exception
Unsurprisingly Newcastle has largely mirrored the price movements of the Sydney housing market. Units are now outperforming detached housing stock. People – largely remote workers, telecommuters – are spending in Newcastle as an identity and lifestyle choice.
8. Rental markets are easing… for now.
New demand is falling even as new supply is rising. More migration and an uptick in first home buyers will see a tightening in the rental market, however. Locally, the rental returns for units in Newcastle are outperforming houses.
9. Back to fundamentals… and growth
There are many positive drivers working to balance the present negative sentiment, with fundamentals remaining strong. Home prices will continue to rise, although growth rates will be more subdued than recent years. Newcastle house prices will stabilise through 2019, but units will perform better.
10. Steady as she goes
We’ll likely see the bottom of the market this year. And despite the slow growth in wages, one aspect of the new economic reality is becoming clear: the flatter price cycle that seems to be coming into play will provide an increase in certainty and predictability.