With the housing market on the upswing, everyone is eager to know what will happen in the next 12 months. We caught up with AMP's chief economist, Shane Oliver, for his insights into where the market is at and where it is headed.
Video transcript below:
Anna Temple: With the housing market on the upswing, everyone is eager to know exactly what will happen in the next 12 months. We caught with AMP’s chief economist, Shane Oliver for his insights into where the market is at and where it’s headed.
Shane Oliver, Chief Economist, AMP Capital
Shane Oliver: My feeling is that this current upswing we are seeing largely being driven by low interest rates and that’s often the key driver for upswings in the housing market. Probably has a bit further to go, I think low interest rates are going to be with us for a while yet as the economy adjusts to a slower growth pace are the mining boom slows down. We really need to try and stimulate the economy and one of the best ways to do that, doesn’t always work steadily is to cut interest rates. That’s what the Reserve has been doing and I don’t see them raising rates for some time yet.
Anna Temple: Oliver says that one problem is that Australian house prices are already high relative to Australian incomes.
Shane Oliver: The problem in Australia is that we are starting an upswing in the housing market where the prices are quite high, compared to people’s income. We pay at least double relative to our incomes, what an average American would pay to buy a house. So we do have a quite expensive housing stock in Australia. That I think will put a bit of a limit on how far house prices can go up from here. Flipside though is that we haven’t built enough houses, there is a limited supply out there, so I think the more likely scenario is that we spend several years where prices sort of trade in a range, at the moment we are going through a bit of an upswing, in a few years times interest rates start will start going up again they might come off a little bit.
Anna Temple: Oliver predicts the upswing has further to go, but wouldn’t go as far as to call it a bubble.
Shane Oliver: My feeling is that boost to the housing market from low rates probably has a bit further to go. Over the next year we will probably see average house prices around Australia rise I would say somewhere around 5%, possibly as much as 10%. I wouldn’t get overly excited though, I would be loathe to call this a bull market or a boom or a bubble and in fact you don’t really want to see that. If we get a bubble, we all know how they end, they can often go bust, at the very least the Reserve Bank will be raising interest rates again. So my feeling is that with housing affordability, at least house prices are still quite high compared to people’s incomes, that the rate of growth will be capped, you are not going to see the sort of surges we have seen in the past, but by the same taken I do see more upside over the course of the next year or so.
Anna Temple: This is Anna Temple reporting for Australian Broker Online.