Westpac’s latest consumer sentiment report suggests that Australians have turned bullish on the housing market.
Despite ongoing interest rate rises from the Reserve Bank of Australia (RBA), house price expectations have soared, suggesting stronger price growth (chart from IFM Investors chief economist Alex Joiner):
Joiner reasons that “population growth and potentially flows from the rental market are adding to demand”, which is more than offsetting concerns around interest rates.
I will add that most indicators have turned bullish for Australian property prices.
Low stock, along with record population growth and soaring rents, is driving a sense of FOMO (Fear of Missing Out) in the market, which is helping to fuel price rises.
This FOMO will likely continue given Australia is experiencing record immigration flows at the same time as actual rates of new housing construction are slowing.
Meanwhile, foreign buyer demand is increasing, led by China, which is placing additional upward pressure on housing prices.
The RBA’s aggressive interest rate hikes are the only major factor tempering house price increases.
But the RBA is at or near the peak of its rate tightening cycle, even though it might hike once or twice more.
Accordingly, most of the ingredients are in place for the next house price boom.
All that is needed is for the RBA to start easing rates late this year or early next, which will turn the house price recovery into a full-fledged boom.
There is also a strong possibility that the Australian Prudential Regulatory Authority (APRA) will follow the RBA’s next easing cycle by cutting its mortgage serviceability buffer from 3%.
Any lowering of APRA’s mortgage serviceability buffer would further expand borrowing capacity and drive house prices even higher.
The way things are shaping, 2024 is looking increasingly like a boom year for Australian house prices.
