Long-dreaded housing crash unlikely, says NAB

by YIP22 Jun 2017
House price growth in Australia is set to slow in the second half of the year; however, it’s unlikely to bring about the long-dreaded housing crash, according to National Australia Bank’s (NAB) economics team.

While house prices and construction levels will remain elevated compared to historic norms, the “triggers for a major price fall seem absent,” the team said.

Even though significant measures have been taken to cool the housing market, such as the latest curbs enforced by the Australian Prudential Regulation Authority (APRA), higher mortgages rates from the banks, and some credit tightening, demand for housing is fuelled by strong immigration and population growth, particularly in Melbourne. Unemployment also remains low, the NAB economists said.

“Moreover, arrears remain historically low, and as noted already, tight lending standards have been tightened further in recent years by the regulator. Unlike the US subprime market where a disproportionate amount of borrowing was done by people on lower incomes, Australian mortgage borrowing is dominated by higher income groups,” they said.

A more significant price decline would likely be driven by a multitude of factors.

“Triggers for a sustained correction in house prices and/or a sharp downturn in construction would likely include some combination of: recession/sharp rises in unemployment in Australia (which would likely be accompanied by a reduction in immigration); sharp increases in Australian interest rates; significant over-supply of dwellings (possible in some parts of the apartment market); a significant downturn in Chinese demand or significant regulatory tightening of offshore housing investments,” the NAB economists said.

While some analysts point to the country’s current residential building boom as one factor that could trigger a more pronounced decline in house prices, the increase in supply is hitting the market just as population growth is accelerating.  

NAB’s analysis generally agrees with the views of other pundits, many of whom think that the Australian housing market is headed for a slowdown rather than a crash.

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