In a recent blog post, the fund manager’s economist Diana Mousina said if interest rates continued to be cut as expected, property values in Sydney and Melbourne were expected to see significant growth in the coming months.
“In looking at recent trends in the housing market, it does appear as if Sydney and Melbourne property prices will likely rise by about 10 to 15 per cent over the next 6 to 12 months, which is heavily predicated on the likelihood that the RBA will continue to cut interest rates,” Ms Mousina said.
“To the relief of home owners, the Australian housing market has performed exceptionally in the second half of 2019. This much-anticipated change in direction for the housing industry has set the tone for the year ahead.”
Ms Mousina said AMP Capital expected two further cuts from the RBA in the first part of the year, which would have a positive effect on home prices, but the impact of possible quantitative easing was less so.
“We anticipate the RBA will announce in early 2020 another two interest rate cuts from the current cash rate of 0.75 per cent,” she said.
“There’s also a risk that the RBA will begin quantitative easing, which would have the likely effect of reducing bond yields and the level of borrowing over the medium term.”
Ms Mousina said the level of credit in the economy was another key point to watch in 2020, as it could affect actions taken by APRA to manage economic risks.
“To date, we’ve noticed the credit data upswing hasn’t been as strong as the increase in lending or in home values. The reason for this is a lot of households are still keeping up their repayments despite recent interest rate cuts,” she said.
“As a result of this households are deleveraging, which is positive for financial stability. If on the other hand we detect that credit data is picking up quite significantly, particularly for investors, it may heighten the risk that APRA responds by introducing macroprudential tightening tools.”
Ms Mousina added that continuing low supply in the housing market could also push property values up in 2020.
“Thanks in no small part to steady population growth over the years we still have a very strong demand for housing in Australia. If supply continues to trickle so slowly into the market, or building approvals remain sluggish, we risk a period of undersupply in Australian housing and home prices will likely continue to rise as a result,” she said.
“Taking all these factors into account, the overall picture for the Australian housing market over the next one to two years is that after initial and significant gains in Sydney and Melbourne, we should see prices start to stabilise, running at about 5 per cent yearly growth over the near term.”
