Brisbane is set for the biggest rise in house prices of any capital city over the next three years, with a 20 per cent jump likely, a new forecast predicts.

 

Sydney and Melbourne prices are set to bottom out and rise at a more modest pace, holding below their recent peaks over the same period, the BIS Oxford Economics Residential Property Prospects 2019 to 2022 report suggests.

 

Sentiment in the weakened housing market has been picking up after the May election, two successive interest rate cuts and the bank regulator’s move to allow home buyers who can get finance to borrow more money.

 

But the research warned any meaningful recovery is some time away amid a high level of new homes being built and continued scrutiny from banks before granting loans.

 

“A lot of the downturn in prices has been more conservative lending policies by the banks,” BIS Oxford Economics associate director, residential property, Angie Zigomanis told Domain.

 

“Despite lower interest rates, people won’t be able to borrow as much as they were able to three years ago.

 

“From an affordability perspective and a borrowing perspective, people can’t pay the same prices.”

 

Forecast median house price growth 2019 to 2022, Australian capital cities
% Growth 2019 to 2022 % Change – previous peak to 2022 forecast
Sydney 6 -13
Melbourne 7 -10
Brisbane 20 17
Adelaide 11 11
Perth 7 -10
Hobart 4 4
Darwin 7 -14
Canberra 10 9

Source: BIS Oxford Economics

 

The downturn hit Sydney and Melbourne the hardest, with the median house price falling 18 per cent and 15 per cent respectively from the peak, BIS estimates.

 

But Brisbane, which has escaped much of the recent boom and bust of the southern capitals, looks relatively affordable.

 

The Queensland capital’s median house price is expected to rise 20 per cent over the next three years, with unit prices to lift 14 per cent, according to BIS.

 

As the state’s economy picks up, potential buyers will be able to take advantage of lower interest rates, which combined with jobs growth will boost their capacity to pay, Mr Zigomanis said.

 

Although a wave of new apartments has been built in the city in recent years, he said the excess supply was likely past its worst point.

 

Sydney is tipped to have more modest growth of 6 per cent in house prices and only 1 per cent for units over the next three years.

 

A strong supply pipeline will put pressure on prices, while tighter credit for investor loans is set to affect demand in the investor-heavy city, the research found.

 

Melbourne house prices are forecast to rise by 7 per cent over the next three years, with units up 4 per cent.

The amount of new dwelling completions is set to fall from 2020-21 onwards while the Victorian capital’s population keeps growing.

 

“In Sydney and Melbourne it’s really going to be a demand and supply story,” Mr Zigomanis said.

 

“Completions start falling over the next couple of years … we also expect the economy to start showing a few more positive signs at that stage.”

 

In resources-affected Perth, by contrast, conditions are seen as unlikely to improve in the medium term.

 

But price growth could pick up towards the end of the three-year outlook, with houses in the WA capital set to lift by 7 per cent by June 2022 and units to increase by 8 per cent.

 

Canberra house and unit prices are tipped to forecast 10 per cent each, with the first-home buyer stamp duty exemptions to help demand.

 

Around the country, Mr Zigomanis said housing looked relatively affordable after recent price falls.

 

Mortgage repayments for a median-priced home as a percentage of income are back to 2013 levels for Sydney and Melbourne, and back to early 2000s levels for most other cities, he said.

 

But saving a deposit is still a challenge, he said, despite some assistance from first-home buyer stamp duty concessions in some states and the prospect of a federal government guarantee  for buyers with low deposits.

 

The research follows forecasts from Domain economist Trent Wiltshire, who expects Sydney prices to rise 2 per cent by the end of the year, and 3 to 5 per cent next year, with Melbourne to add 1 per cent by the end of 2019 and another 1 to 3 per cent in 2020.

 

SMH/ Jul 15, 2019

It will now be easier for Australia’s prospective home buyers to take out bigger mortgages.

That is because the prudential regulator has decided to relax stringent lending restrictions on banks and other financial institutions.

Effective immediately, banks no longer need to apply a “stress test” to see whether their customers can afford, at least, a 7 per cent interest rate on their residential home loan repayments.

Under the new standards, implemented by the Australian Prudential Regulation Authority (APRA) on Friday, banks will have the freedom to set their own serviceability buffers.

The only restriction is that the banks ensure borrowers can repay their loans if interest rates were at least 2.5 percentage points higher than they are currently.

With many banks now offering variable mortgage rates in the low-3s, that means many borrowers are likely to be tested at a rate below 6 per cent per annum as banks decide whether they can afford to repay their loan.

“In the prevailing environment, a serviceability floor of more than 7 per cent is higher than necessary for ADIs [Australian deposit-taking institutions to maintain sound lending standards,” APRA’s chairman Wayne Byers said.

“However, with many risk factors remaining in place, such as high household debt and subdued income growth, it is important that ADIs actively consider their portfolio mix and risk appetite in setting their own serviceability floors.

How much extra can people borrow?

The removal of the interest rate floor also comes amid falling house prices, record-low credit growth and expectations that the Reserve Bank will lower interest rates again this year.

The RBA cut Australia’s cash rate earlier this week to a record low 1 per cent. It was the second rate cut in just two months.

These record low rates mean APRA’s rule changes will allow people to borrow a lot more.

A family, earning an household income of $109,688, would be able to borrow up to $60,000 more, if their loan was assessed at 6.25 per cent instead of 7.25 per cent, according to financial comparison website RateCity.

Its analysis suggested that a single person, in the same scenario, may be able to borrow an extra $50,000.

“Many Australians may suddenly find they can get their home loan approved,” RateCity research director Sally Tindall said.

“However, with more buyers in the market, house prices could also take-off again.

“APRA has eased off the brakes slightly, but that doesn’t mean it will be a complete field day for borrowers.

“There are still a number of checks and balances in place to make sure people aren’t jumping into home loans they can’t afford to repay.”

Investment bank UBS forecast that prospective buyers might be able to borrow up to 14 per cent more due to the RBA rate cuts and APRA’s loosening of lending restrictions.

“However, these changes need to be considered in the context of ongoing tightening, in particular a new HEM [Household Expenditure Measure] methodology, the rollout of comprehensive credit reporting and open banking,” UBS banking analyst Jonathan Mott wrote in a note last month.

The HEM is a relatively low estimate of basic living expenses. It was frequently used by banks instead of actually evaluating the customers’ declared living expenses.

This approach received harsh criticism during the banking royal commission, last year.

Westpac’s approval of loans using HEM also led to accusations it breached responsible lending laws, and is the subject of a Federal Court lawsuit brought by the Australian Securities and Investments Commission (ASIC).

 ABC News 2019-07-05