Improved confidence spurs HSBC home prices forecast rise

HSBC economists boost house price forecasts on lending changes and improved confidence.

Cheap access to credit will likely see household debt continue to rise at a modest pace.

HSBC economists are anticipating national housing prices to rise between 5 per cent and 9 per cent in 2020, revising up previous forecasting.

Modest gains of between 0 per cent to 4 per cent were previously anticipated by the bank. The decision to reassess predictions comes after the market turned a sharp corner in the middle of the year and began its rapid growth in June, spurred by several changes to lending an improved confidence spread through the market.

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Paul Bloxham, HSBC’s chief economist for Australia, New Zealand and global commodities, said amplified demand from low listing numbers is partly to blame.

“We expect housing prices to continue to rise in 2020, underpinned by mortgage rates, which are likely to stay low for a considerable period of time,” Mr Bloxham said.

HSBC chief economist Paul Bloxham.

“However, while we expect to see housing demand remain strong, we also expect the recent strong housing price gains in major cities to entice more sellers, increasing available supply and housing turnover. This should temper the recent pace of housing price gains in Sydney and Melbourne from their current very rapid monthly rates.”

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Melbourne prices are expected to see the biggest hike over the next 12 months, with rises of 10 per cent to 14 per cent. Prices in Sydney should rise at a similar pace, with gains of 8 per cent to 12 per cent anticipated. Other capital cities should see more modest gains.

As recently as six months ago, commentators questioned how much further prices could fall following the royal commission, tight access to credit and potential changes to property tax. Reported price falls of 2 per cent in 2018 and 6 per cent in 2019 amplified conversations.

“Oh, how the story has changed,” Mr Bloxham said.

The Reserve Bank has cut interest rates by 75 basis points since June, bringing the official cash rate to a record low of 0.75 per cent and APRA also lowered the serviceability floor for mortgages which has made it easier to get a loan.

“The speed of this change has seen a sharp rise in housing demand (buyers), without much of a rise in established housing market supply (sellers) as yet. As a result, housing prices are rising strongly,” Mr Bloxham said.

Cheap access to credit will likely see household debt continue to rise at a modest pace, but Mr Bloxham noted it is unlikely to in-of-itself be a trigger for a sharp downturn. Generally, higher household debt levels would make the economy more vulnerable to a negative economic shock.