Fitch Forecast: Stable outlook for Australian property prices

When it comes to salacious articles regarding the property market, buzzwords abound, and several media outlets have been guilty of using eye-catching click-bait such as “market crash” and “the bubble will burst” in their titles.

While this bad news may make for good headlines, Fitch Ratings have released their Global Housing and Mortgage Outlook for 2018, and their expert analysis of the situation begs to differ with the hype.

House price growth since the GFC, fuelled by low interest rates and high levels of investor activity, has begun to slow down across the country, and this has been influenced by a number of factors.

Looking at the economy as a whole, Fitch say that while interest rates are at record lows and the unemployment rate is stable, there continues to be high levels of underemployment throughout the country, and investor activity is down following APRA’s macro-prudential measures.

There’s also the looming glut of new apartments in Melbourne and Brisbane, which are likely to sell for lower values than anticipated, as well as new foreign ownership restrictions and falling rental yields. According to Fitch, these factors spell a “soft landing” for the Australian property market – a far cry from the doom-and-gloom crash scenarios touted in the media.

Australians “extremely vulnerable”

Fitch also expects the recent surge in first homebuyer activity to slow down. In 2017, first homebuyers made up 17 per cent of the market, up from 13 per cent in 2016, boosted by stamp duty concessions. However Fitch believes the effect of these measures will be temporary, as sluggish wage growth and tighter loan criteria continue to put pressure on housing affordability.

The Fitch report states that the measures introduced by APRA have helped ensure that buyers are able to service their mortgages, but other pressures such as the rising cost of living are placing stress on household budgets.

With record-high levels of household debt, many Australians are extremely vulnerable to economic factors, such as interest rate rises. If banks continue to tighten their serviceability criteria, we could see fewer loans being approved – and fewer buyers means slower price growth.

Nationwide price growth of 2 per cent.

Based on all these factors, Fitch anticipates that house prices in Australia’s largest markets, Melbourne and Sydney, will remain stable in 2018. Nationwide, they predict price growth of just 2 per cent, down from 5 per cent in 2017.

These predictions are echoed by analysts at UBS, in their latest Australian Banking Sector Update. The UBS report claims that the “fear of missing out euphoria”, which has characterised the market of late, is “fading quickly”, particularly in the big cities where enthusiasm and sentiment for investment in property seems to be waning.

UBS shares Fitch’s concern regarding Australian’s debt, noting that as a proportion of disposable household income, debt now sits at a record-high 20 per cent and is a concern.

However the Reserve Bank of Australia has different views. Revealing fresh research into how few households are struggling to pay their debts, Reserve Bank assistant governor Michele Bullock said the financial risks thrown up by the nation's debt load is relatively modest. She said that the overall level of "stress among mortgaged households remains relatively low".

So, what can the average Aussie homeowner or investor make of all this speculation?

Certainly at this stage, there’s no cause for panic or concern, and it seems a gentle cooling of the market is more likely than a dramatic crash – just be sure to take advice from the experts, and don’t be alarmed by sensationalist headlines!