The Reserve Bank of Australia is poised to continue with interest rate cuts despite a turnaround in the pivotal Sydney and Melbourne property markets where dwelling values have increased for the first time since 2017.
On Tuesday, the RBA board meets in Darwin for the first time since June 1968, with markets expecting it to follow-up its June rate cut with another quarter percentage point reduction in the official cash rate. Such a move would take interest rates to a new all-time low of 1 per cent.
It appears its cut last month – the first since August 2016 – had an impact on the housing markets of Sydney and Melbourne with overall dwelling values increasing.
In Sydney, values lifted by 0.1 per cent, the first increase since June 2017.
The lift was driven by the apartments sector with the value of units across Sydney up by 0.3 per cent through the month. Values of houses were flat.
In Melbourne, values lifted by 0.2 per cent with houses up by 0.1 per cent while apartments jumped by 0.5 per cent.
Despite the improvements, both Sydney (minus 9.2 per cent) and Melbourne (minus 11.8 per cent) are still well down over the past 12 months. Sydney values have, since their peak in the middle of 2017, gone through their biggest correction since the 1982 recession.
Elsewhere, house values fell in Brisbane (0.5 per cent), Adelaide (0.5 per cent), Perth (0.7 per cent), Darwin (1.7 per cent) and Canberra (0.9 per cent).
CoreLogic’s Tim Lawless said several factors, including continued population growth in Sydney and Melbourne plus the re-election of the Morrison government, were contributing to the stabilisation of the property market.
“Stability within the federal government, along with the removal of uncertainty surrounding changes to negative gearing and capital gains tax discounts, has brought about increased certainty and boosted confidence in the housing market,” he said.
Another factor is the drop-off in people listing properties for sale.
In December 2017, there were 5580 new listings on the Melbourne market while there were 4550 in Sydney. Now, new listings are down to 4392 in Melbourne and 3866 in Sydney.
Commonwealth Bank senior economist Belinda Allen said potential negative headwinds for the property market were out of the way.
While auction clearance rates had improved, overall property sales were still low which suggested the market and the broader economy would remain soft.
“Turnover though is still weak. This is one reason why consumer spending has been soft, as lower housing turnover impacts demand for household goods and furnishings,” she said.
“Lower interest rates and tax cuts should help household spending but a lift in turnover in the housing market will also help.”
AMP Capital chief economist Shane Oliver cautioned that while home prices may be close to their bottom, the chances of them taking off again were low as people were now heavily indebted and there was a large supply of apartments in Sydney and Melbourne.
“While capital city average prices are likely to bottom by year end, we don’t see a return to boom time conditions but rather expect broadly flat home prices through 2020,” he said.
While the housing market may be stabilising in Sydney and Melbourne, there continue to be issues for the wider economy.
The Australian Industry Group’s manufacturing index fell into negative territory in June, signalling the first contraction in the sector since August 2016.
“While the pace of growth has eased over the past year, the combination of the housing construction downturn, a slowing in engineering construction, continuing drought conditions and slow income growth across the broader economy caught up with the manufacturing sector and dragged it into negative territory as the financial year drew to a close,” industry group chief executive Innes Willox said.