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Brendan Coates

Brendan Coates

Property Price Optimism Returns: ME Bank

Property price optimism is returning to the residential housing market, with owner occupiers and investors revising up price expectations for 2020.

In the wake of recent record growth forecasts along with the latest ABS results showing decade-high rates of first home buyer loans, ME Bank’s latest Household Financial Comfort Report confirms Australian households’ optimism regarding the outlook for residential property prices. 

According to the bi-annual survey, around half of the nation’s owner occupiers (47 per cent) and investors (51 per cent) revised up price expectations for 2020.

Optimism with regards to property prices was highest in the east coast capitals of Brisbane, Sydney and Melbourne, with owner occupiers in the sunshine state overwhelmingly the most positive at 67 per cent and 61 per cent respectively, followed by 55 per cent of Melbourne owner occupiers, and 51 per cent of Sydney investors. 

Perth’s owner occupiers are the least optimistic about the residential property market prospects, at 29 per cent.

Now in its 17th year, ME’s report is based on the Household Financial Comfort Index, measuring how comfortable Australian households feel about their financial situation by asking respondents to rate financial comfort, expectations and confidence on a scale of zero to 10 across measures including changes in household income, cost of living expenses, short-term savings, long-term investments and household debt.

Ten of the 11 key drivers that make up the index showed improvement—the most notable being “comfort with debt”, up 5 per cent to 6.55 out of 10—a record high result.

Households in major cities proved to be the most optimistic, particularly among those with mortgages on their homes or an investment property, among whom ‘comfort with debt’ increased 7 per cent.

Consulting economist Jeff Oughton said that record low mortgage rates and rising house prices were a big contributing factor.

“Significantly lower home loan rates and relatively low and stable unemployment rates helped to significantly improve ‘comfort with debt’ – especially in major capital cities, while a partial reversal of the fall in residential property prices in eastern capital cities and expectations of further price gains have also eased gearing concerns,” Oughton said.

Ongoing drought and recent bushfire catastrophes are considered likely contributors to a sharp fall in financial comfort in regional areas – a record 13 per cent of households, which is almost twice the historical average.

For the first time in the latest survey, households were asked if they thought they were ‘better’ or ‘worse off’ as a result of the RBA’s record-low interest rates, and overall, the impact continues to be positive, with slightly more households across the nation reportedly “better off” at 27 per cent, compared to 23 per cent considering they were worse off: put simply, a net positive impact from very easy monetary policy.

“Those households paying off a mortgage felt they were far better off than those renting or who already own their homes,” Oughton said.

“When it came to investors with debt, results show they feel they’ve benefitted the most (60 per cent ‘better off’) from the flow-on to record low mortgage rates – an indication of the high level of gearing among residential property investors in Australia.”

Scores for households paying off home mortgages were up 4 per cent to 5.46. And of those households that found themselves better off following the RBA interest rate cuts, 32 per cent increased their mortgage repayments.

Households in major cities proved to be the most optimistic, particularly among those with mortgages on their homes or an investment property, among whom “comfort with debt” increased 7 per cent.