Australia’s Housing Market: Light At The End Of The Tunnel

• The Australian housing market is arguably approaching the bottom. The decline in home values has recently moderated, and the consumer sentiment suggests that households feel more comfortable in buying a home. In other words, housing prices could have fallen enough to begin to attract investors.
• The encouraging news is that economic policies have become supportive. While mortgage rates have risen on the back of higher USD funding costs, the RBA became dovish by lowering the cash rate by 25 bps in June. With Natixis’ scenario of a 25-bps rate cut by the Fed in December, Australian banks have additional room to lower the mortgage rates, alleviating the burden of the highly indebted households. Furthermore, the bank regulator (APRA) relaxed its criteria for households’ debt serviceability, and the Coalition government has also introduced new measures to support first home buyers.
• Although the headwind from the weak foreign demand remains strong notwithstanding a very weak Aussie, the nationwide vacancy rate remains low, and domestic demand for housing should increase supported by a strong population growth on the back of stronger immigration.

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