End of housing downturn draws closer: Pete Wargent

Not too many surprises in the Treasurer's 2019 Federal Budget, then.

Tax cuts for households were effectively doubled from around $150 billion to about $300 billion, in rounded numbers. 

Quite a substantial saving of tax for households was mooted to be released in stages, and more Aussies eventually set to be paying tax at 30%.

There were some more immediate handouts, something of a boost to infrastructure spending, and a broadening of the scope for business asset write-offs.

Nothing too unexpected nor dramatic, but an expansionary Budget nonetheless. 

Rentals tightening ex-Sydney

Assuming the Opposition wins the election, as is widely expected, there may be changes to tax policy for housing. 

But although this hasn't showed up in official data yet, the squeeze on property investors is now quietly beginning to hurt some of the people Labor's policy is designed to help, most notably renters.

I'd suspected this might happen, but had no worthwhile evidence for it until this week.

I've been in Melbourne for a few days, and agents are now reporting queues and multiple applications on some rental properties, and offers being made above asking rents prior to settlement for entrant landlords.

This is mainly taking place in the landlocked inner- and middle ring suburbs of Melbourne.

And granted it's far more so the case for trendy terraces and family homes than it is for apartments. 

But it's the first hard evidence that a reduced supply of rental stock will eventually lead to an accommodation shortage and a spike in rents, with or without Labor's proposed changes. 

The construction pipeline is also now shrinking after a record cycle for housing starts. 

Fixed rates falling

Affordability in cities such as Sydney has improved over more than two years since the first quarter of 2017, with transactions taking place at a level about 15% lower than at the heady peak, on average, while incomes are also up modestly by about 5% over the past couple of years. 

Unemployment rates in the two most populous cities and states have fallen to multi-decade lows at about 4 to 5%. 

Funding costs have eased suddenly and sharply, globally the upwards pressure on interest rates has quickly reversed, and fixed mortgage rates in Australia are now falling. 

Yesterday the Reserve Bank took a "surprising and significant step" towards a formal or explicit easing bias after a couple of years in a more balanced position, through amending the closing sentence of its monetary policy decision to a more dovish stance. 

That paves the way for an interest rate cut some time between May and August, with another to follow later (markets are pricing about a three in 10 chance of a cut as soon as next month). 

We aren't quite there yet, but the end of the downturn in housing market sentiment appears to be closer.

An official cash rate heading towards 1% will do that, of course, even when banks don't pass on the full 50 basis points. 

Perhaps more important than all of the above is that there are some tentative signs of lending to investors picking up.

And if leading indicators are our thing, all industry participants I've spoken over the past week or two have reported a noticeable lift in activity of late...especially on the 'buy side'. 

PETE WARGENT is the co-founder of AllenWargent property buyers (London, Sydney) and a best-selling author and blogger.