AMP chief economist Shane Oliver gives Australian Broker his predictions for the 2014 property market.
Video transcript below:
Reporter: As we begin the new financial year, business and consumer confidence seems sluggish. So how would this affect the property market? Shane Oliver, Chief Economist, AMP predicts that a lot rests on the incoming budget measures.
Shane Oliver, Chief Economist, AMP
Shane Oliver: Well there is no doubt that the budget, not so much dollar values in the budget, but all the talk about [wealthy] cut backs, increasing retirement age, all those sorts of things have negatively impacted confidence. Not so much business confidence, it’s held up reasonably well, but particularly consumer confidence has had a bit of a fall and it is a risk that could affect demand for housing, properties and so on over the next few months.
My feeling though is that if the budget is to get through the Senate, the government will have to soften a lot of the measures. So I think a lot of the hit to confidence will gradually fade over the next few months.
Reporter: When it comes to interest rates, Oliver predicts they will hold due to unemployment numbers.
Shane Oliver: In the very short term we are still in sort of an uncertain phase of the Australian economy, the mining investment boom as we all know is phasing down, other sectors of the economy like housing, construction have picked up, but we are still, I think it is in the near run unemployment will remain around the sort of 6% level probably out over the remainder of this year, then through next year the unemployment rate should probably start to fall again, to come off as the economy picks up pace.
Against that backdrop, I think the Reserve Bank will leave interest rates on hold. They feel that they have cut interest rates enough and they are down at record lows, there is still uncertainty though about the economy, so they are not going to be jacking rates up anytime soon. So I think probably at least another six months, the rates being on hold, then maybe sometime through next year probably by the end of March, I think we will start to seei interest rates heading up again.
Reporter: Overall Oliver states that the housing market has cooled a little, a welcome change.
Shane Oliver: What we have seen though is that in the first six months of this calendar year, the pace of growth has slowed down to an annual rate of around 6%, so they are up 3% in the first half, multiply that you get about 6%, that’s compared to pace which was nearly double that through the latter part of last year. So I think the housing market has cooled off a little bit and that’s a welcome cooling, because on the one hand you do want to see prices go up, but you don’t want to see them shooting the lights out because sooner or later the Reserve Bank might be forced to respond with higher interest rates.
In other words put an end to the surging prices because they will start worrying about whether there is another bubble or what it means for debt, what it means for affordability, so my feeling is that the property market has moderated a bit, the budget impact on sentiment might have been affected there. I think affordability has deteriorated a bit and I think also people are a bit more cautious about taking on debt these days than they were say 5 – 10 years ago. So all of those things tell me the property market is still moving ahead, price is still rising but it’s probably around half the pace that they were through much of last year.