CBA Market is bottoming out

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Commonwealth Bank of Australia, the nation’s largest property lender, claims there are clear signs the residential property market is bottoming and set for a rebound after two year’s in the doldrums.

Property prices are expected to begin climbing back into positive territory in the second half of the year and should generate returns of about 3 per cent in 2020, compared to recent falls of about 14 per cent in Sydney and higher in Perth and Darwin.

Rate cuts, tax cuts, easier lending standards, rising population and improved sentiment are combining to boost market activity and offer early evidence of sustained improvement. The return of a federal coalition government has removed fears of changes to negative gearing and capital gains tax.

Michael Blythe, chief economist said: “Home buying intentions have been in negative territory since 2018, however current readings suggest the market is finally turning.”

Mr Blythe said demand weakness was the trigger for falling prices, rather than a supply glut as was the fear in 2017-18.

But the bank’s analysis reveals continuing weakness in retail and motor spending intentions

He said: “The big question right now with interest rate cuts in place and tax cuts coming is whether policy makers have done enough to keep the Australian economic story on an even keel. The overall message about household spending intentions has changed over the first half of 2019. The weakness evident since mid-2018 spilt over into the early part of 2019, but a more diverse picture is now evident.”

The bank’s analysis is based on a deep-dive into its extensive data bases covering 2.5 million households and 16 million customers.

Separate CBA research predicts higher lending growth to property investors that will support dwelling prices, particularly as rental yields are higher than term deposit rates, which are sliding towards zero as cash rates are cut.

It predicts property prices in Sydney and Melbourne, the nation’s largest real estate markets, are expected to rise between 2.5 per cent and 2 per cent over the second half of the year.

“Such an outcome would see prices ending 2019 down by about 2 per cent,” the analysis concludes. Nationally prices will end the year with gains of about 2 per cent, rising to 3 per cent in 2020.”

Tight lender credit and low sales volumes should keep the brake on property prices, even as prices have stabilised and sales increased, according to separate analysis by global investment bank Morgan Stanley.

According to the investment bank’s analysis, auction clearance rates are rising but property volumes remained 30 per cent below the three-year average. For volumes to recover to average in September, the traditional peak sales period, there will need to be a 70 per cent increase from current levels.

Morgan Stanley claim the likelihood of a price surge is low because of the soft economy and limited appetite from regulators for a credit rebound.

All key indicators the investment bank uses to assess market performance, which range from the demand-supply balance to rental conditions, market accessibility and credit supply, remained negative. It predicts prices are likely to remain “broadly flat” over the rest of the year.

Source: https://www.afr.com/companies/financial-services/property-market-has-bot...

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