UBS: House prices to fall only 5-10%

UBS economists have upgraded their price forecasts for Australia’s housing market. They now expect home prices to fall by between 5-10% during the next year, an upgrade from its previous forecast of at least a 10% drop. UBS has also revised its forecast for dwelling commencements to 153,000, up from 130,000 for this year. “Resilient approvals” combined with the federal government’s home builder scheme have also prompted the investment bank’s economists, led by George Tharenou, to upgrade dwelling starts.

Tharenou added that the investment bank’s upgrade is more about the economy than the federal government’s $688 million stimulus, announced on Wednesday.

“We still see prices falling, but now only -5 to -10 per cent,” he said.

On Thursday, ANZ’s economists David Plank and Hayden Dimes said the bank “remains of the view” that dwelling prices will fall into 2021 due to a fall in demand from deteriorating household finances and reduced population growth.

“Government stimulus may delay this weakness, but it won’t be enough to prevent lower house prices eventually,” Dimes said. Corelogic figures show Australia’s home prices fell in May, down 0.4%, but the pace of decline was less than expected.

“However, a negative factor for investors is rents will face further weakness, as first home buyers exit the rental market, and migration demand stays weak, at least until next year,” Tharenou said.

While the housing stimulus package was smaller than flagged, Tharenou said there’s talk of more to come, particularly from state governments, such as stamp duty relief or support for build-to-rent. UBS says the latest package will largely favour detached housing, given the short timeframe of the stimulus, rather than multi-dwelling projects such as apartments and townhouse complexes.

The economists expect housing stock to be “resilient” at 96,000, while multi-dwelling projects are forecast to slump to 54,000 from 104,000 in 2018, before recovering in 2021.

The outlook for Australia’s dwelling commencements in 2021 remains unrevised at 170,000.

The unemployment forecast is less severe at 10%, in comparison to its previous 10.5% forecast, although unemployment figures “may not reach that level if momentum continues”.

Due to border closures, UBS expects estimated “underlying demand” to temporarily slump from 200,000 to 130,000 in late 2020 with migration levels paused.

ABS figures, released Wednesday, show dwelling approvals fared better than expected in April, although building approvals data is not expected to reflect the Covid-19 impact until August.

Written: 19 June 2020

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