December 2018 Newsletter


In our December 2017 newsletter we reported on the Australian Housing Outlook 2017-20 report, produced by QBE with consultancy BIS Oxford Economics. One of the forecasts was that Sydney, Melbourne, Adelaide, Perth and Darwin would become more affordable in the next three years.

That’s certainly been the case for many parts of Sydney this year. And while many investors and upgraders might be sitting on the sidelines, the correction has seen an increase in first homebuyer activity.

According to the Westpac 2018 Home Ownership Report, nearly two-thirds of first homebuyers feel home ownership is closer now than 12 months ago. In addition, 69 per cent of respondents said they were more positive about the overall market.

Talking to the Daily Telegraph, Westpac’s head of home ownership, Lauren Fine, said a softer market had provided first homebuyers with the opportunity they have been waiting for.

“If you consider they have been shut-out of the market for so long, it’s great to see them finding their own voice,” Ms Fine said. “I think it shows determination and resilience on the part of people who want the Australian dream of home ownership, and despite their circumstances, they are willing to get in and do what is needed to make it work.”

In September this year, the number of first homebuyer commitments as a percentage of total owner-occupied housing finance commitments rose to 18.0 per cent, up from 17.8 per cent in August. And in NSW there has been more than a 70 per cent increase in first homebuyer finance approvals over the past 12 months. This has been attributed to the fall in prices, a decline in investor numbers and changes to stamp duty that came into effect in July 2017.


Despite the regular reports on the current state of the housing market, other key indices show that the Australian economy is performing well. According to the RBA, over the past year, GDP increased by 3.4 per cent and the unemployment rate declined to 5 per cent, the lowest in six years. All in all, it shows the Australian economy is tracking well.

In his statement regarding the decision to keep the official cash rate at record lows at the November RBA Board meeting, Governor Philip Lowe said the forecasts for economic growth in 2018 and 2019 have been revised up a little. The central scenario is for GDP growth to average around 3 ½ per cent over these two years, before slowing in 2020 due to slower growth in exports of resources. Business conditions are positive and non-mining business investment is expected to increase.

Higher levels of public infrastructure investment are also supporting the economy, as is growth in resource exports.

The statement also referred to the easing conditions in the Sydney and Melbourne housing markets. “Growth in credit extended to owner-occupiers has eased but remains robust, while demand by investors has slowed noticeably as the dynamics of the housing market have changed. Credit conditions are tighter than they have been for some time, although mortgage rates remain low and there is strong competition for borrowers of high credit quality,” Mr Lowe said in his statement.

Australia most at risk

However, Mr Lowe pointed to one area of uncertainty: the outlook for household consumption.

“Growth in household income remains low, debt levels are high and some asset prices have declined. The drought has led to difficult conditions in parts of the farm sector,” he said.

According to Morgan Stanley, Australia’s economy is most at risk in the developed world from household debt building up because of weak house prices and potential tax changes. That’s based on the findings of the bank’s Household Deleveraging Risk Indicator, which looks at relative debt and structural weaknesses. Sweden and Canada are the second-most at risk, the report found.

Mortgage Stanley estimates that household debt in the 10 largest developed economies has surged to 160 per cent of income from 98 per cent over the past two decades. And if the trend is suddenly reversed, that could have consequences for monetary policy.

“The increasingly proactive use of macroprudential tools and greater inflation-target flexibility in some countries will lead to more gradual rate-hiking cycles, with lower neutral rates in the medium term,” the report stated.

Paul Bloxham, Chief Australia and New Zealand Economist at HSBC, said in an article that given Australia’s already elevated household debt levels, the potential for a broader macroeconomic slowdown is perhaps the greatest threat that could make the current downturn a whole lot worse.

“Australia’s high household debt levels are unlikely to cause an economic downturn by themselves, but would be expected to exacerbate a downturn, if a negative economic shock arrived,” Mr Boxham said.

“Household debt levels have risen to new record high levels in recent years, with the household debt to income ratio currently around 190 per cent. A rapid rise in interest rates could push costs up quickly, but that remains unlikely, in our view.”

Mr Bloxham has previously stated that the Australian economy will be able to withstand the effects of falling home prices, putting his faith in continued strength of the labour market to help sustain household spending levels.

In an opinion article in The Australian Financial Review, the chief investment officer at Crestone Wealth Management, Scott Haslem, said that: “While the outlook is always uncertain, with the jobs market firm and no anticipated sharp rise in unemployment on the horizon, it seems more likely that weakening housing activity will remain a persistent and significant problem for growth over the coming year or so – with lower house prices and slowing loan growth – rather than developing into a systemic or recession-like event.”


The Charles+Stuart team would like to wish everyone season’s greetings and a happy and healthy 2019. It’s certainly been an ‘interesting’ year on the housing market front – and there are plenty of people wondering what the new year will hold.

According to the Chinese Zodiac, 2019 is the Year of the Pig, which apparently is a great year to make money and a good year to invest!

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