Australian house price growth looks set to slow in the second half of the year, but it's unlikely to herald the start of a housing crash.
That's the view of the National Australia Bank's economics team, who say that while house prices and construction levels remain elevated compared to historic norms, the "triggers for a major price fall seem absent" in its opinion.
Here's the basis for its call:
In general, while there have been some measures taken to cool housing such as APRA restrictions, some credit tightening and higher mortgage rates, immigration and population growth remain very strong, especially in Melbourne, and unemployment remains low. Moreover, arrears remain historically low and as noted already tight lending standards have been tightened further in recent years by the regulator. Unlike the US subprime market where a disproportionate amount of borrowing was done by people on lower incomes, Australian mortgage borrowing is dominated by higher income groups.
NAB says in order for a more significant price decline to occur, it will likely be driven by a multitude of factors.
Triggers for a sustained correction in house prices and/or a sharp downturn in construction would likely include some combination of: recession/sharp rises in unemployment in Australia (which would likely be accompanied by a reduction in immigration); sharp increases in Australian interest rates; significant over-supply of dwellings (possible in some parts of the apartment market – monitor Brisbane and apartment settlements more generally); a significant downturn in Chinese demand or significant regulatory tightening of offshore housing investments; or if prior lending was driven by poor lending standards.
While some point to the Australia's current residential building boom as one factor that could lead to a more pronounced decline in house prices in the future, the increase in supply is now hitting the market just as population growth accelerates, a factor that may not only soak up supply but also underpin prices.
This chart from the NAB shows that Australia's population, aged 15 years and older, is currently growing 1.4 times faster than total new residential approvals, leaving it just below its long-run average.
And as approvals decline and population growth accelerates that ratio is now increasing, something that has, in the past at least, helped to underpin price growth.
While the risks that the NAB points to above are all valid when it comes to potential house crash triggers, given the current set of circumstances, they appears unlikely to happen in the short-to-medium term.
However, over the longer term, given the financial and migration linkages between Australia and China, one suspects that it would take some sort of negative shock from the Chinese economy to spark real concerns about a significant downturn in Australia's housing market.