Major bank raises house price forecasts and suggests interests rates will remain stable until 2019
House prices in Australia will rise by 7.2% in 2017 and 3.4% in 2018, NAB has predicted. The Forward View April 2017, a report by NAB’s economics team also predicts that apartment price rises will rise in 2018, by 6.8%, but fall in 2018 by -0.4%.
With growth yet to cool in Sydney and Melbourne and markets such as Hobart growing strongly, NAB notes that they have revised up their house price forecasts, previously forecasting 3.4% growth over 2017. NAB argues that the impact of recent changes by APRA is unclear: “macroprudential measures can be effective in the short-term, but their longer term impact is more questionable. NAB Economics assessment is that the new policies will likely slow mortgage lending growth in the near-term, albeit fairly modestly.”
Come 2018 price growth will slow, NAB predicts, due to tighter credit and regulatory conditions and “compounded by modest wages growth/ deteriorating affordability and new additions to the housing (apartment) stock”. NAB notes that the construction boom may last longer than expected, with dwelling investment rising 2% in 2017 before falling in 2018 and 2019.
NAB’s report also predicts the RBA will not raise the cash rate until 2019 and even then to just 2%. “Rate hikes are highly unlikely in our view”, the report explains, “given forecasts (the RBA’s and our own) which see the unemployment rate elevated for a considerable period, and for underlying inflation to remain below or just on the bottom of the target band.”
In order for the RBA to raise rates the economy will need to show signs of improvement, NAB argues, with unemployment dropping to 5.5% and inflation returning to a 2-3% target. NAB doubts that the RBA will use interest rates to control the housing market, instead relying on APRA, adding that “the RBA may also be hoping to see some extensive measures to address housing affordability issues in the Federal Budget [unveiled in May].”
Mortgage Professional Australia 18/4/2017