Australian house prices, which turned a corner at the end of 2020, will rise this year and next, fuelled by ultra-loose monetary policy from the Reserve Bank of Australia, a Reuters poll showed.
Since the coronavirus pandemic began, the central bank has flooded the system with cash and slashed its key interest rate to an all-time low of 0.10% to help pull Australia out of its first recession in three decades.
That has clearly helped the housing market, where record-low mortgage rates have sparked an upturn in house prices.
The Jan. 13-28 poll of 13 property analysts showed home prices would rise 5.0% this year, marking a U-turn in expectations from a September survey, when prices were forecast to decline 2.8%.
They were then expected to gain a further 5.3% in 2022, a solid upgrade from 3.4% predicted in September.
"Easy monetary policy raises the borrowing capacity of cohorts who kept their jobs through lockdown, which substantially increases the total amount of debt that these cohorts can take on. This is critical for an owner-occupier led recovery," said Adelaide Timbrell, an economist at ANZ. (Graphic: Reuters Poll: Australia house prices outlook, https://fingfx.thomsonreuters.com/gfx/polling/jznpnmomqvl/Reuters%20Poll%20-%20Australia%20housing%20graphic%20-%20Jan%202021%20(1).png)
Seven of eleven analysts who answered an additional question said easy monetary policy would stimulate Australia's housing market activity and contribute to price rises. Two cited fiscal stimulus and two said an economic recovery.
The RBA last month acknowledged the upside risk of keeping interest rates low for longer and said a 100 basis points reduction in interest rates could push real housing prices up 30% after about three years.
When asked what was more likely for Australian housing market activity this year, all 10 analysts unanimously said an acceleration.
That optimism lines up with a separate Reuters poll of economists, which showed Australia's A$2 trillion economy would expand 3.5% this year, after contracting 3.0% last year. [ECILT/AU]
A regional breakdown of the poll showed house prices in Sydney and Melbourne - Australia's two most populous cities that contribute more than 40% to the country's gross domestic product - were forecast to rise between 4.7-5.1% this year and next.
In Brisbane, Adelaide and Perth they were expected to rise between 5.0-8.0% this year and in 2022. All forecasts were a substantial upgrade from the September poll.
SHUT THE DOOR
When asked what would be the biggest hurdle to the country's housing market over the coming year, six of nine analysts said lower immigration. Two said renewed COVID-19 restrictions in major cities and one said high unemployment.
The global coronavirus pandemic led to an early closure of Australia's borders and a fall in new arrivals has dampened the construction boom in Australia's housing sector, which has been fuelled by migrants in big cities such as Sydney and Melbourne.
"Low migration will not only impact housing demand but also economic growth," said Quyen Quach, associate director of research at Colliers International.
"It being a significant driver of economic growth in most states, if migration levels remain low and coincide with the flow-through of stimulus-induced building activity, price growth will likely be weak if not negative."
(For other stories from the Reuters quarterly housing market polls:)
(Reporting by Vivek Mishra, Polling by Indradip Ghosh and Swathi Nair; Editing by Jonathan Cable and Alex Richardson)
