The Reserve Bank has downgraded its expectations for the housing market, delivering a downbeat assessment in which it says income-to-housing ratios have reached levels not seen since 2002, and that a recovery is still going to take some time.
The comments, in the bank’s quarterly statement on monetary policy, say the bank’s near-term outlook for residential building activity has been revised down after data showed there are “few signs of an imminent turnaround in demand”.
The predictions gel with the latest auctions data, which have confirmed sales in both Melbourne and Sydney remain weaker than last year’s sales, and also come after new home sales data fell to their worst level in nearly two decades.
CommSec economist Craig James says the comments are noteworthy, given the RBA has spent more time talking about the housing market in this particular statement than they have in the past.
“The RBA knows this is not going to be solved overnight in terms of interest rate levels. It gets down to the confidence of investors, and owner occupiers, and it will get down to the banks as well.”
“This will be a challenge for any government.”
The RBA said in its statement the subdued activity in housing is due to three main reasons: poor sentiment for job security, weak housing markets and tight credit conditions for developers.
And although the central bank says residential building will eventually pick up, “forward looking indicators suggest there is little prospect of an imminent recovery in housing construction”.
“Approvals for new dwellings have continued to trend downwards in early 2012, especially for higher-density housing (mainly apartments) this follows the run-up in approvals in 2010 that was concentrated in Victoria.”
“Approvals for detached houses are at low levels in all mainland states, notwithstanding a recent increase in Queensland that can be partly attributed to the state government’s Building Boost Grant for new dwellings.”
The RBA also pointed out the ratio of dwelling prices to income has fallen to a level not seen since 2002, thanks to a property price fall of about 6% in the major capital cities.
The comments have disappointed the housing market, which is struggling to overcome weak auctions data in both Sydney and Melbourne, poor new home sales and falling prices. Consumer confidence in the market has been battered, and experts point out interest cuts won’t help as much as they used to, now the banks have decoupled their own decisions from the RBA’s movements.
James says there are some signs the market is improving – and that it will continue to do so over the rest of the year –but that spectators should take a hint from the RBA and remain patient.
“Once confidence levels start to improve, then we’ll get a better turnaround. But we can’t be confident about that, because of the weakness of the total economy.”
“There will be better times ahead, but things will have to gradually improve over the course of the year.”
The auctions market has disappointed this week, with Melbourne recording a 62% clearance rate with 592 listings.
However, this was some improvement on last week when there was a 58% clearance rate and on this time last year, when there was also a 58% clearance rate with 629 properties on the market.
Real Estate Institute of Victoria chief executive Enzo Raimondo said in a statement the decrease in interest rates announced by the RBA may help activity, “but it is unlikely we will see any noticeable impact for another few weeks”.
Raimondo echoed James’ sentiments, saying confidence levels will need to improve first.
Sydney recorded a clearance rate of 60.5% with 366 listings, and 292 reported auctions, while Adelaide and Brisbane recorded rates of 28% and 30% respectively.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
