HSBC Tips Big City Soft Landing

Posted on 30/11/2018  
HSBC Tips Big City Soft Landing

The cooling of Sydney and Melbourne markets has been orderly so far and is heading for “a soft landing”, according to HSBC senior economist Paul Bloxham.

He says that – because the cooling of the housing markets in the two biggest cities is happening at a time when jobs growth is strong and mortgage rates are historically low - it has so far been quite orderly, with loan arrears still low and little evidence of forced sales.

“Our central case is that the housing market will have a soft landing,” he says. “We expect Sydney and Melbourne housing prices to have a peak-to-trough decline of about 12%.”

“The astute observer would note that what is happening now in the housing markets in the biggest cities, and the economy more generally, is the solution to the affordability problem that was on everybody’s lips as recently as the middle of 2017.

“After all, there are two main ways to improve housing affordability — either household incomes can rise faster or housing prices can fall. What is happening right now in Sydney and Melbourne is a combination of both.

“Household income is picking up, due to a strengthening economy, which is supporting solid jobs growth and starting to drive a pick-up in wage growth.”

Bloxham says prices are no longer growing in the two biggest cities for a number of reasons.

First, a construction boom has added supply, particularly of apartments, so supply is finally catching up with strong population growth-fuelled demand.

Second, foreign demand has weakened due to stricter capital controls in China, local restrictions in Australia, and higher taxes on foreign purchases.

Finally, credit availability has tightened, largely reflecting moves by the authorities to constrain lending to investors in recent years, given concerns about excessive investor exuberance.

 

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