Property growth rates may have peaked but prices aren’t set to fall just yet
The booming property market is expected to keep growing despite the threat of rates moving earlier than expected, albeit the rate of incline is set to slow, a leading economist told Smart Property Investment.
Strong employment data, business confidence and retail sales have economists predicting that Australia has potentially reached its turning point, with rate rises likely to come sooner than expected.
But despite the looming threat of a rate hike, with Commonwealth Bank recently choosing to announce an unexpected rate boost, AMP Capital’s Dr Shane Oliver believes the property market will continue to grow over the medium term.
“When the dust settles for investors, they’ve still got an environment of strong economic growth, low interest rates, which is a positive for them,” Dr Oliver said.
And while Dr Oliver is optimistic that the property market will remain strong over the next couple of years, he opined that the best period could potentially be over.
“The March rise was probably the strongest [we will have].
“You always get to this point where everything comes together at once – the incentives, the low rates, the economic recovery, the job market recovery and the HomeBuilder stimulus have come together in March, giving this super-sized rise in prices,” Dr Oliver said.
“Now you have to factor the positives that are still there but they have faded a little bit.”
“Fixed rates in recent times have been accounting for 40 per cent of new mortgages. Prior to the coronavirus, they were only 15 per cent.
“Now they are a much bigger portion because a lot of the rate declines were on fixed rates and people were motivated by those rates falling below 2 per cent,” Dr Oliver explained.
“They are not at levels that will cause a major downturn in the market, but as the ultra-low fixed-rate deals start to evaporate and rates gradually head higher, it will take some of the momentum out of the property market boom. But we are looking at a slowing in growth, not a fall in prices.”
Dr Oliver is not the only one to predict a levelling pf property prices, with Archistar noting in a recent report that growth will decline as affordability barriers rise "as a result of strong prices growth pushing buyers out of the market - particularly first home buyers.”
Archistar noted that the new incentives introduced by the federal budget - such as the Family Home Guarantee for Single Parents - are unlikely to significantly impact housing markets due to their narrow focus.
They also said investor activity is now exceeding the share of first home buyers in the market, though the “total market share remains well below Its long-term average.”
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