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House prices last hurrah before boom slows

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HOUSE prices are expected to surge in the coming months due to the economic recovery, though this is unlikely to be long lasting as affordability and rising supply will eventually catch up.

According to Capital Economics’ Australia & New Zealand Chart Book, house prices in Australia are following a typical pattern of trailing after those in NZ, driven by markers of an economy rebounding after COVID-19.

The current surging of house prices is likely to be short term, having risen by 1.7% April, compared to the 2.7% increase recorded in March.

“While the weaker base means that the pace of annual growth is set to surge in the near term, consumer expectations and our sales to new listings ratio have started to come off the boil,” said the report, authored by economist Ben Udy.

“And given the strength in housing finance commitments, we think credit growth will surge before long leading APRA to reimpose lending restrictions. That’s one reason why we expect house prices growth to ease and even decline next year.” Udy said.

Recently AMP Capital chief economist Shane Oliver said the above trend growth may be close to an end.

Meanwhile Capital Economics found business confidence rose to a record high in Australia during the month of April, with business’s having a sunnier outlook than they had pre-pandemic. It expects GDP, which rose to pre-COVID levels in the first quarter, to increase by only 0.2ppt.

In the first quarter, retail sales recovery began to slow down. Despite rising by 1.4% in March, this figure wasn’t high enough to offset previous decreases.

Capital Economics expects a 1% rise in consumption for the quarter, with a more significant recovery forecasted after an effective vaccine rollout.

Trade likely stunted quarter one growth, despite a rise in export values driven by rising commodity prices. Tensions with China were likely responsible for export values rising less than prices would suggest.

Unemployment fell from 6.4% in January to 5.6% in March, a far steeper fall than previously anticipated.

This decline may be paused by the end of the JobKeeper initiative however, with payroll data declining in the first fortnight following its conclusion. Though this did coincide with a typically weaker Easter Weekend.

However, consumer sentiment suggests a further fall to 5%, with unemployment already at pre-pandemic levels.

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