Four BIG reasons why the housing market is looking up

June 4, 2019, 4:59 pm

At a time of economic uncertainty, we are witnessing the unique convergence of four major factors that may just signal the recovery of the housing market.

1. A surprise coalition government
In a recent post we considered What the Federal Election result means for Wagga but more specifically, what does the result mean for home buyers and new home builders?
A Shorten government, true to its electioneering promises would have reformed negative gearing and capital gains tax arrangements. Specifically, negative gearing would have been limited to new housing from 1 January 2020 while the capital gains tax discount on all assets purchased after that date would have been halved.
Unexpected victory to the Morrison government has prevented this and has coincided with a few other economic factors that we are optimistic can collectively stimulate the housing market.

2. The RBA keeps cutting the official cash rate
The housing boom has cooled, and unemployment is on the rise so we can expect the RBA, true to the minutes of this month’s monetary policy meeting, to keep throwing everything at reinvigorating our economy through rate cuts. This response is unashamedly intended to improve housing affordability and keep our dollar at an export-optimised low.
The majority of Australian economists believe the official cash rate will be cut to 1 per cent by the end of this year. The common belief is that we can expect two cuts by the end of 2019, today’s (June 4) and the next in August. Some analysts are predicting as many as four cuts in the next 12 months.
We have witnessed that rate cuts alone won’t turn the housing market around, but the Reserve Bank’s actions gain greater effect when coupled with Morrison’s victory and a surprise outcome for borrowers.

3. APRA says you can borrow more
After a brief period of tightened lending following the banking royal commission, APRA the prudential regulator, recently made it easier for Australians to borrow money.
In May, APRA announced plans to revise its mortgage lending guidance which previously were set specifically to constrain the flexibility of banks to set interest rates.
As a result, borrowers may be able to obtain larger loans, and this will drive a resurgence in residential property demand. We note this as a significant positive but acknowledge that lending should only be entered into only under quality financial advice.

4. First Home Buyers get a boost
A number of our customers are first home buyers and we were so pleased before the election when the Prime Minister announced a new housing affordability initiative for first home buyers. The Morrison government is seeking to make the First Home Loan Deposit Scheme available to first home buyers earning up to $125,000 annually or $200,000 for couples who have been able to save a deposit of at least 5 per cent, compared with a standard 20 per cent. “I want more Australians to be able to realise the dream of owning their own home,” Mr Morrison said. “This will make a big difference, cutting the time to save for a deposit by at least half, and more.”

Now that negative gearing is here to stay, two rate cuts have been predicted, banks can set their own interest rate buffers and first home buyers can expect guaranteed deposits; we are optimistic that this unique confluence of circumstances will positively impact the market.
It’s highly unlikely these four factors will propel us towards another property market boom in the short term, but collectively they’ll provide cushioning for our economy and opportunity for new home buyers.

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The information in this blog is purely observational and in no way intended to be considered financial advice.

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