Fundamentals remain strong for housing

CBA director of economics John Peters (Photo: Ted McDonnell)
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FUNDAMENTALS in Australia’s economy and housing market remains positive with around 200,000 dwellings needed to be built each year for the foreseeable future, according to Commonwealth Bank director of economics John Peters.

Peters who was presenting at the Australian Property Institute’s Sydney Property Market Outlook conference, said the news is very good on the local front.

“We haven’t had a recession for 26 years and it doesn’t look like we’re going to have one in the next year or two. We haven’t had one since 1991… and we’re expecting growth of about 0.8% in the quarter, which will leave year-on-year growth at about 2.25%.

“Over the year, the coming year we expect that growth rate to pick up to around 3%, and that’s going to be driven by consumer spending, continuing housing investment, particularly in the eastern states centred on Sydney and Melbourne, we expect continuing strong growth there,”

Peters said increased government spending on infrastructure, particularly by major states like Victoria and New South Wales will also help drive growth, and the CBA sees a big pick up in export volumes coming in the next year.

“In fact, iron ore volumes have picked up about 70% in the past year and prices have gone up as well. Same for coal, volumes up 60% and prices have gone much higher as well.

“We’re now getting the fruits of that massive construction boom in mining, which is very labour intensive. We’re now in the output phase, so we’re actually pushing this increased production out into global markets, and we have the happy coincidence that demand from the global economy, particularly from our major importer of our goods, China, is really picking up again. So that export side is going to be very profitable for the economy over the coming year,”

Peters also predicts unemployment will track lower.

“It’s about 5.75%; we see it heading down towards 5% over the next couple of years. We also see steady interest rates; they’re at record lows, so inflation’s running at 1.5%, the cash rate’s 1.5%, the inflation at 1.5% is below the Reserve Bank’s 2-3% target zone, so on that basis we’ve seen a real pickup in inflation in the next year or so, so we don’t see the Reserve Bank lifting these rates from record lows any time soon. Nor do we see them actually cutting rates again, they’re quite reluctant to.

“They think, monetary policy has run its course, we’ve pushed rates down to record lows; any further rate cuts won’t produce increased growth in the economy, they might push us towards financial instability, and the writing of loans that aren’t quite measure up to any credit risk analysis.

“They’d rather the government spend a little more on infrastructure, so they see if the government actually wants to help growth while business investment is missing in action, they really are pushing the government to actually build more infrastructure, ports airports, fix up the roads, etc. so watch this space,” he continued.

On the housing area, Peters said the sector has been one of the key drivers of growth as the economy transitioned from the mining investment boom and the housing market has helped keep the economy in the black.

He expects that will continue.

“The fundamentals are positive we’ve got growth in the economy, we’ve got unemployment falling, we’ve got unemployment falling, we’ve got jobs being created, and a key thing is we’ve got firm population growth, mainly driven by immigration, high immigration levels of skilled workers and business migrants, and that adds to demand.

“And for years we haven’t built enough homes, we’ve built record numbers in the last two years of that, about 225,000, but we still haven’t cleared that pent-up demand, and with this sort of population growth we’ll still need to build around 200,000 units or establishments a year for the foreseeable future.

“So all those fundamentals look good, we don’t see any move up in interest rates, and barring some global catastrophe – which can never be ruled out – it looks pretty positive from here on in,” Peters concluded.

Australian Property Journal