Rate cuts dismissed as house prices ‘defy belief’

The Australian 12:00am March 16, 2017

Daniel Palmer

The chief economist of one of Australia’s largest banks has ­issued a stark warning on housing markets in Sydney and Melbourne, saying prices are so high they “defy belief”.

The candid assessment by the National Australia Bank came as it also predicted high property ­prices would force the Reserve Bank to keep interest rates at their record low of 1.5 per cent throughout the year.

NAB chief economist Alan Oster warned yesterday that housing price growth showed no signs of slowing, and that growing concerns about financial­ ­stability and household debt led the bank to ditch its earlier ­forecast for two rate cuts this year. It’s the second change to the bank’s forecast in as many months.

“The housing markets in Sydney and Melbourne continue to defy belief in 2017, with property prices showing no real signs of slowing despite tightening credit conditions and concerns about ­affordability,” he said. “Indeed, housing finance has remained strong, especially for investors.

‘‘Auction volumes are also solid, and auction clearance rates are up from the levels seen at the same time last year — suggesting the markets remain tight.”

The comments are the latest in a chorus of warnings about housing markets amid serious concerns over affordability at a time of low wage growth and whether the government will act in the federal budget to put a brake on runaway prices.

But Mark Bouris, founder of Australian home loan lender Wizard Home Loans, has argued that housing affordability is going to “adjust itself”. “The political environment is over-regulating everything, not just mortgages, not just house prices, everybody’s over-panicking about the natural market increase,” he told Sky News.

Most analysts had tipped that curbs on investor lending, low wages growth and a record numbers of apartments to be completed this year would cap price growth from the latter part of 2016 and into this year.

Frontier Advisors this week noted Australian housing was up to 20 per cent overvalued.

AMP Capital chief economist Shane Oliver said the housing market was now “expensive on all metrics”. He anticipates a price pullback of 5 to 10 per cent in the housing market once the RBA starts hiking rates — in 2018 or 2019 — with falls of up to 20 per cent for unit prices in ­Sydney and Melbourne.

February data revealed a 2.6 per cent jump in Sydney prices for that month, while Melbourne valuations rose 1.5 per cent. That was enough to stir surprise, given prices in the two cities have risen 75 per cent and 47 per cent respectively during the past five years.