POLL-Weak demand now the bane of once-storming Aussie housing market

Australian housing market activity won't recover from the recent slowdown for at least a year as dwindling household incomes and soaring unemployment hammer demand, causing home prices to fall this year and next, a Reuters poll of analysts showed.

Australian housing market activity won't recover from the recent slowdown for at least a year as dwindling household incomes and soaring unemployment hammer demand, causing home prices to fall this year and next, a Reuters poll of analysts showed. Now in its first recession in three decades, Australia's economy is expected to recover slowly even though the spread of the coronavirus is largely under control and most businesses have reopened. Still, policymakers expect unemployment to rise to about 10% from 6.8% in August.

That forecast comes despite aggressive monetary policy easing from the Reserve Bank of Australia, which has so far chopped its key interest rate to an all-time low of 0.25% and launched a bond-buying campaign to hold market yields down. The Sept. 16-28 poll of 12 property analysts showed average home prices would fall 4.5% this year and another 2.8% next. The market is forecast to recover 3.4% in 2022. All of these were slightly milder predictions than in the Reuters poll in June.

"The deterioration in household income will be the biggest driver of weakness, but elevated uncertainty, much lower population growth and weak investor appetite given the slump in the rental market will all weigh on house prices," said Felicity Emmett, senior economist at ANZ. "Government support and the deferral of home loan repayments have undoubtedly helped support the market. But with unemployment likely to continue to rise and fiscal stimulus to shrink in Q4, prices are likely to continue to decline."

Six of the 10 property analysts who answered an additional question said activity in the Australian housing market would take at least a year to recover from the recent slowdown. In a worst-case scenario, the median forecast of a slightly smaller sample showed a 5.0% decline in house prices this year and next, with forecasts ranging from -6.0% to as low as -15.0%.

Asked which was a greater risk for the Australian housing market over the coming year, all but one of six analysts said a sharp economic slowdown. "We believe house prices will face downward pressure nationwide, as supportive factors will be outweighed by the impact of the change in net immigration," wrote Ben McCarthy at Fitch Ratings in a note.

"Immigration had already been slowing prior to the outbreak of the pandemic, but has plunged since the health crisis led to strict controls on international travel." A regional breakdown of the poll data showed Sydney and Melbourne, which contribute about 43% to the country's gross domestic product, were forecast to decline 2.0% and 7.0% in 2020, respectively, sliding again by nearly 4.0% in 2021.

"The impact of closed borders on immigration, which has helped fuel the housing market, particularly in Sydney and Melbourne in recent decades, will be significant," said Shane Oliver, chief economist at AMP Capital. "Home prices are expected to fall by around 10%-15% from their April high. Melbourne is particularly at risk on this front, as its 'Stage 4' lockdown has pushed more businesses and households to the brink."

(For other stories from the Reuters quarterly housing market polls:)

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