AS the property downturn draws to an end, there are important lessons for policy-makers, lenders and investors to be learned, according to RiskWise Property Research CEO Doron Peleg.
“Labor’s loss has eliminated the number one risk to the property market and this, combined with the high likelihood of interest rate cuts by the RBA this year, the introduction of the First Home Loan Deposit Scheme and the Australian Prudential Regulation Authority’s (APRA) proposal to remove the 7 per cent ‘stress test’ replacing it with a 2.5 per cent buffer, will support the bottoming of the Sydney and Melbourne markets by the end of the year and then a gradual recovery,” said Mr Peleg.
Mr Peleg said despite claims by some experts it had been on the verge of collapse, the market remained viable, despite price falls.
And, with a “good arsenal of tools” by the policy-makers, there should be no crash, says Mr Peleg.
“In September last year, some experts warned of collapse due to ballooning household debt, compounded by sliding prices in Sydney and Melbourne, that would escalate to falls of 40 to 45 per cent in the next 12 months,” Mr Peleg said.
“Not only has it not happened – and would not even if Labor had won the election – but more importantly, policy-makers have taken measures to boost demand.
“The First Home Buyers Scheme – that could also be a larger-scale first home buyers’ grant, if needed – was introduced prior to the election by the Coalition and was adopted a few hours later by Labor.
“In addition, the flow-on effect of lower property prices on household wealth, consumer spending and also on dwelling commencements and, consequently, lower GDP, increases the likelihood of interest rate cuts to ‘almost certain’.”
He also said APRA’s credit restrictions to reduce investor demand had eased and it was proposing lenders scrap the 7 per cent ‘stress test’ requirement on home loans replacing it with a buffer of 2.5 per cent on top of the interest rates.
“The important thing to remember here is that in the future don’t expect total collapse of the housing market in a US GFC-style meltdown. It is extremely unlikely, and policy-makers take actions when required,” he said.
“It’s equally important that decisions should not be made under the assumption that very extreme scenarios will take place, for example, following the 60 Minutes story in September 2018 in which it was reported there could be a 40 per cent drop in Australia’s house prices… this had an impact on sentiment and confidence to some extent.”
Key lessons from the property downturn