Property Forecast

Ten years of intense investment and premium growth - that&rsquo;s what the Olympics means to South-East Queensland real estate.

Confirmation that Brisbane will host the 2032 Olympics is a game-changer for the economies and property markets of South-East Queensland &ndash; and the state generally.

Property prices and rents are already rising in Brisbane, the Gold Coast and the Sunshine

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Coast but the Olympics announcement will turbocharge markets throughout the region.

Spending on major new infrastructure has been pivotal in generating economic activity, jobs and real estate demand in SEQ in the past year &ndash; but the prospect of hosting the Olympics in

10 years&rsquo; time will generate an elevated program of investment and development.

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The real estate industry tends to spruik a property boom after a major event like the Olympics but all the evidence suggests that the greatest impact for property markets occurs in the lead- up to the event, not in the aftermath.

History shows that major international sporting carnivals generate big growth beforehand.

The Sydney Olympics in 2000 and the Commonwealth Games on the Gold Coast in 2018 provide templates for how these big events impact local economies and property markets.

The years leading up to the 2018 Commonwealth Games on the Gold Coast saw increased real estate activity, thanks to the rising levels of construction of infrastructure and facilities, the jobs this generated and the consequent demand for real estate accommodation.

There were similar outcomes around the 2000 Olympics in Sydney.

The Olympics announcement also creates increased media focus on the SEQ region and the affordable lifestyle it offers. And it starts now &ndash; and will extend over the next 10 years.

As a consequence, the next decade will be a period of out-performance for real estate across Brisbane, the Gold Coast and Sunshine Coast in particular.

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PIPA chairman Peter Koulizos has commented on what the 2032 Olympic Games may mean for the Brisbane property market.&nbsp;

&ldquo;Research shows that residential property prices do perform better as a result of an Olympic Games,&quot;&nbsp;he says.&nbsp;&nbsp;

&ldquo;A study on six host cities, from Los Angeles in 1984 to Sydney in 2000, suggests that the impact on the economy and residential property prices is not even. It depends on the planning and the scale of the Olympic investment.&nbsp;&nbsp;

&ldquo;Research on the London Olympics showed that areas close to Olympic facilities increased in value by 2% to 5% higher than other areas.&nbsp;

&ldquo;An investigation on the impact of the Sydney Olympics on the residential property market found that the markets of host suburbs experienced substantially higher growth during the bidding and pre-Olympic periods, but not after the Olympics were held.&nbsp;

&ldquo;PIPA has conducted research into Sydney&rsquo;s residential property prices pre- and post- Olympics that shows that from the time the announcement was made in September 1993 to the Olympics being held, Sydney was one of the best performing capital cities. However, post-Olympics, the rate of growth decreased significantly.&nbsp; &ldquo;Based on our research and analysis, it is obvious that Brisbane and South-East Queensland will benefit from hosting the Olympic Games.

&ldquo;However, the benefits will vary depending on the location of Olympic facilities and the new infrastructure to be built, especially infrastructure that will better link the Sunshine Coast and Gold Coast to Brisbane.&rdquo;

Ten years of intense investment and premium growth - that’s what the Olympics means to South-East Queensland real estate

terryryder

What does the Olympics means to South-East Queensland real estate? Hotspotting's Terry Ryder

One of most bemusing factors of modern media is that people with appalling credentials at forecasting things are given a free ride by journalists.

In a sensible world, only credible people would have their forecasts held up before the public as something worthy of attention. In this utopia, journalists would check on the track record of forecasters before publishing their latest predictions.

On that basis, the American doomsday merchant Harry S Dent would never feature in Australia media. Every time he visits, which sadly is often, he forecasts a disastrous collapse in our property prices in the next 12 months.

Nothing like that ever happens but each time he makes this recurring forecast, he gets acres of free publicity. No doubt he will next time as well. The reality is that few journalists care too much if the prediction is outlandish or if the forecaster is someone who invariably gets it wrong.

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The priority is the clickbait headline. Anyone seeking cheap publicity can make a wackadoodle prediction &ndash; prices will fall 40% or young families will never be able to buy a home ever again - safe in the certainty that no one will check later to see how their forecast turned out and hold them to account.

Here are some recent forecasts or observations about real estate matters which received widespread media attention but are doomed to be proven off target:- &ldquo;Missing migrants&rdquo; will &ldquo;choke&rdquo; the housing rebound&rdquo; (The Australian): &ldquo;Weak population growth due to low immigration could drive a slowdown in the housing market&rdquo; (The Courier-Mail): Economists and other non-specialists continue to obsess over the absence of overseas migrants and the view that this should be impacting housing markets. It&rsquo;s very naughty of property markets not to collapse on cue.

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One of the factors they&rsquo;ve overlooked is that returning ex-pats have more than compensated for the lack of overseas migrants buying homes. And when international borders do re-open, I believe there will be an avalanche of migrants heading to Australia, creating a second wave of buyer demand which will prolong the current upcycle.

One of the proponents of the population furphy in recent media coverage is the nation&rsquo;s worst forecaster of real estate outcomes, Shane Oliver of AMP Capital. Keep in mind that 12-15 months ago he was forecasting a collapse in property prices. &ldquo;FHBs will be squeezed out of property market by investors&rdquo; (The Courier-Mail) and many others: Media outlets struggling for a headline can always resort to the hardy annual that young Australians are doomed to a lifetime of renting, with investors the villains of the piece. This has been a recurring theme in Australian media for decades. And yet the past 12 months has been the most prolific period ever for first-time buyers, helped by high levels of government assistance.

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Prices are rising across the nation and somewhat inevitably media has turned this into a crisis because FHBs, allegedly, will never again be able to afford home. Investors, as usual, are the scapegoats

The reality is that this dramatic escalation in prices in the past 6-12 months has been generated by owner-occupier buyers, including FHBs, with investors largely absent. &ldquo;House price growth tipped to slow despite the RBA cash rate call&rdquo; (Smart Property Investor); &ldquo;End of the property boom, experts say&rdquo; (realestate.com.au); &ldquo;68% of experts says prices will peak this year&rdquo; (various media); &ldquo;Is the housing boom about to bust?&rdquo; (The Age) and many others: There appears to be an unofficial competition to be the first the call the end of the boom, with the level of interest rates the prime influence.

When the national average growth in property values was slightly lower in April than in March (according to one research source), &ldquo;experts&rdquo; rushed to declare the end of the boom. But May produced another uplift in the rate of growth. Oops. Then, again, when the rate of national growth in June was less than May, there was another &ldquo;the boom is over&rdquo; chorus. All this was, rather foolishly, based on month-to-month data from one source. Media is very liberal with its use of the word &ldquo;expert&rdquo;.

Finder&rsquo;s regular surveys of &ldquo;experts&rdquo;, which includes the one that found that &ldquo;68% of experts&rdquo; expect prices to peak soon, do not include many people who deserve the title of expert with regards to real estate. Most of them are economists and academics &ndash; there&rsquo;s hardly a genuine expert among them.

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&ldquo;Almost a third predict rate rise over 12 months &ndash; ANZ survey&rdquo; (Mortgage Business); &ldquo;Why interest rates could be set to rise in 2022&rdquo; (Fairfax Media); &ldquo;ANZ tips early rate hike&rdquo; (The Australian) and many others: Media is obsessed with interest rates and there is daily speculation that the official rate will rise.

The Reserve Bank governor Philip Lowe keeps repeating that he doesn&rsquo;t see an interest rate increase before 2024, but &ldquo;experts&rdquo; eager for media mileage persist with their speculation that the cash rate will go up much sooner. Apparently they believe Lowe is lying. I don&rsquo;t believe consumers share journalists&rsquo; fascination with the level of the official interest rate. For them, the day-to-day speculation is pointless and boring.

The implication in much of the coverage is that if the official interest does rise, the property boom will end. This is based on the mistaken belief that &ldquo;record low interest rates&rdquo; have caused the strong market, which is kindergarten analysis delivered by &ldquo;experts&rdquo;. There is also constant speculation about an intervention by APRA, although there is no indication that current lending standards would warrant it.

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&ldquo;Property buyer and developers should be quaking in their boot&rdquo; (AFR): This rather sensationalist article in the increasingly-tabloid Financial Review was based on the notion that &ldquo;sharply rising interest rates and falling population growth&rdquo; would precipitate a crash.

It was also predicated on the theory that we&rsquo;ve had a national property boom for the past 25 years and that FHBs can no longer afford to buy. Much of the rhetoric in the article was based on the thoughts of prolific media commentator&nbsp;Chris Richardson from Deloitte Access Economics, who loves an opportunity to deliver a pithy five-second grab for television and other media. Yes, another &ldquo;expert&rdquo;. This article was sensationalist and lacking in substance, like so much coverage of real estate.

In a sensible world, only credible people would have their forecasts held up before the public as something worthy of attention

Don't believe every property forecast you read: Hotspotting's Terry Ryder 

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EXPERT OBSERVER
Here’s the hardest thing for real estate consumers doing research: who do you believe?
It’s hard to know who’s worth listening to and who is not. There are so many people pumping out press releases, writing commentary pieces and pontificating on television about our housing markets – and only a small fraction of this mass of white noise is worthy of your attention.
But there are markers which expose the pretenders – clues which allows you to separate the genuine experts.
Here’s how to identify the pontificators you should ignore:-
1. They discuss Australian real estate as a single market
The Federal Treasurer Josh Frydenburg exposed himself as a pretender in a recent column published in The Australian. His opening paragraph stated, as a fact: “Prices in our major capital cities have fallen for 12 consecutive months …” 
In doing so, one of our most senior federal politicians perpetuated one of the worst pieces of misinformation currently out there.
Frydenburg’s statement is outrageous misinformation. One source that is often quoted, CoreLogic, has the average result for the eight capital cities as a negative figure, but at the same time records that nine of the 14 major market jurisdictions (eight capital cities and six regional areas) have prices higher than a year ago.
Other research sources have different figures. SQM Research, for example, records the national average results as a 1.7 percent rise in annual terms, while the latest ABS figures record quarterly price rises in five of the eight capital cities.
So the claim that prices have been falling everywhere for 12 months is unsupported by any of the research evidence. The Federal Treasurer is simply parroting misleading media headlines.
But Frydenberg is not alone in his ignorance. Indeed, he has lots of company, when it comes to extrapolating the Sydney/Melbourne situation into a national downturn. Economists, in particular, are prone to misinforming Australians by discussing the nation as a single market and often getting their analysis wrong by generalising about prices.
We’d all be better off if they simply shut up.
Contrast that with these recent comments from someone with real credentials, veteran adviser and commentator Noel Whittaker:
“The problem is that most media commentary focuses on that elusive animal they call the ‘property market’. We might be told that Australian property is overheated, or that the property market has fallen by 5.6 per cent in the last year (in Sydney), or that Perth values have fallen by 12.6 per cent after peaking in 2014.
“But the fact is there is no such a thing as a single property market – not for Australia, not even for a single capital city – there are myriad property markets all doing their own thing. How can you compare a townhouse in Cairns with a mansion in Point Piper? All over Australia some markets may be rising, other markets may be falling, and some may be flat.”
Whittaker has encapsulated exactly how I see it.
Next time you hear/read a commentator discussing “the Australian property market” or claiming that “Australian house prices have fallen 5 percent”, turn the page or change channels because the talking head/writer is a charlatan pretending to be an expert.
2. They’re not real estate specialists
The problem with Josh Frydenberg is that, while he may prove to be a capable Treasurer, he’s not a real estate expert. Residential property is not his specialty.
This is the core problem with many of the prolific pontificators. Economists frequently make the mistake of thinking they can extrapolate their financial knowledge and economic theories to the real estate market. After 35 years as a real estate specialist, I’m still waiting to encounter an economist who understands the peculiar dynamics of real estate markets.
Last week I wrote about my Top 20 Worst Predictions About Australian Real Estate. Most of the people who made that list by getting their predictions horribly wrong were economists who strayed outside their area of speciality.
True real estate experts who are worthy of your attention are those who are genuine specialists for whom researching markets is a daily routine. They’re also people who don’t treat real estate data as a vehicle for free publicity, but as a means to inform the public by presenting well-considered and balanced analysis.
They include people like Louis Christopher of SQM Research and Simon Pressley of Propertyology. These are genuine experts who specialise in residential property. I don’t suggest they’re right about everything but they have earned the right to be heard by being real, independent, devoted experts.
3. They believe it’s all about interest rates
Most of the pretenders talk about the level of interest rates as the prime determinant of real estate markets and their cycles.
Ask your average economist why Sydney boomed and they’ll tell you it was “record low interest rates”.
This is a ridiculous for several reasons. If the level of interest rates was the catalyst, why no boom in Brisbane? Or Adelaide, Canberra and most of regional Australia. Why have prices fallen in Perth and Darwin during this period of record low rates?
It’s false logic to assume, as many economists do, that low rates = boom and rising rates = downturn. The two big nationwide property booms of the past 30 years (late Eighties and early Noughties) both occurred during periods of high and rising interest rates.
The end of the Sydney/Melbourne booms occurred with interest rates still at these very low levels.
The profile of the person you should ignore is an economist who rants about “the Australian property market” in the context of national factors like interest rates and APRA decisions – and generally tends to feel that everything that happens in real estate markets is an outrage because it doesn’t fit with their economic models of what prices should do and where values should be.
The genuine expert will discuss individual markets, include different sub-markets within each of our major cities, and will understand the fundamental importance of the underlying local economies, influenced by population trends, infrastructure spending, jobs creation and supply-demand factors.
Terry Ryder is the founder of hotspotting.com.au
<a href="https://mailto:ryder@hotspotting.com.au">ryder@hotspotting.com.au</a>
twitter.com/hotspotting
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terryryder-YECXbqmri2

How to identify a misinformed property forecaster: Hotspotting's Terry Ryder

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EXPERT OBSERVER
Two years ago I researched media predictions about residential property and compared the forecasts with subsequent outcomes.
It showed the remarkably bad track record of spruikers, economists and attention-seekers in forecasting what will occur in our markets nationwide. 
Over the past 15 years or so, it’s become trendy to make doomsday forecasts about real estate. A popular number is 40 percent - i.e. the standard scary prediction is a 40 percent drop in our property values, usually tipped to take place in the next 12 months.
Every single one of these forecasts has been proven spectacularly wrong – not surprisingly, because most of them have been fanciful in the extreme and I’m quite certain that the forecasters themselves did not believe what they were saying. The goal has been to achieve some quick and easy publicity. 
Out of this research exercise I compiled a list entitled “Top 20 worst predictions about Australian property markets”.
No.1 on this list was a US spruiker called Jordan Wirsz (don’t feel bad if you’ve never heard of him) who visited Australia in 2012 and forecast a 60 percent fall in home values in a “bloodbath” to take place in the next year. He also tipped that land values would decline 90 percent.
Can you imagine that? He was claiming that our residential land would be virtually worthless. 
Nothing remotely like that has ever occurred in the history of planet Earth and it’s difficult to comprehend why anyone would think it could happen in Australia.
The most amazing thing was that Australian media gave these predictions credibility and gave the touring spruiker exactly what he wanted – lots of free publicity.
What followed this prediction was five years of major price increases in our two biggest cities and mostly steady markets in the rest of Australia.
Another US pontificator, Harry S Dent, has visited Australia several times in the past seven years and each time – including in 2011 and 2014 – has warned that our property prices would crash in the next 12 months.
Each time Australian media has treated him as a credible commentator, with oodles of free profile, notwithstanding his growing track record of getting his forecasts about our real estate markets utterly wrong. I’m sure that next time he visits the same will happen again.
My Top 20 list also includes local economists who have made similar predictions within specific time frames, with the same success rate.
Some have claimed that our homes are over-valued according to their favoured economic model and therefore prices must fall. Others have stated that, back in the days of rising interest rates, that the higher cost of money would cause a collapse of property values.
The head of one of our major banks said in 2011 that the sovereign debt crisis in Europe would force down our property values, only to be followed by several years of strong price rises.
One high-profile and much-quoted Australian economist declared in 2005 that there would be no growth in our home values for the next 10 years. Ouch.
Also on the Top 20 list are commentators who rushed – in 2013 and 2014 - to be the first to declare the end of the price boom in Sydney and Melbourne. 
One of them was a senior official at the Reserve Bank, while another was a Morgan Stanley analyst who famously said, about three years too early: “If you’re an investor, you’ve missed the boat.”
So now we have the notorious 60 Minutes debacle, with yet another forecast of property values falling 40 percent, based on nothing but a pre-conceived notion to boost ratings.
I note that virtually every independent commentator who has reacted on the 60 Minutes program has said that the forecast scenario was highly unlikely or plain silly. Even the key analysts featured on the Channel 9 program have claimed that their views were misrepresented through selective editing. I spoke to one of those who was featured on the program and he was horrified at the outcome.
I was approached by 60 Minutes in mid-August to take part in the program. But they dropped the planned interview when I told them I disagreed with their basic premise of collapsing property markets.
This is not how journalism is meant to work. In true journalism, you do your research and conduct your interviews - and then you come to some conclusions and decide your headline. 60 Minutes did it backwards by deciding the headline and then seeking comment that supported it.
I complained to the ABC television program Media Watch and last week they did a segment pointing out the many flaws in the 60 Minutes segment.
I’m sure the 60 Minutes program will feature prominently next time I update my Top 20 Worst Predictions list, with the same level of success as the many doomsday forecasters who have preceded them.
Terry Ryder is the founder of hotspotting.com.au
<a href="https://mailto:ryder@hotspotting.com.au">ryder@hotspotting.com.au</a>
twitter.com/hotspotting
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The 20 worst crash predictions about the Australian property market: Hotspotting's Terry Ryder

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EXPERT OBSERVER

2020 didn’t exactly turn out the way I or many expected a year ago. For Australia, the year started badly as severe drought had given way to the worst bushfires on record. But just as the bushfires were receding it gave way to the coronavirus pandemic. Every year has a big surprise - or what Dr Don Stammer has long called Factor X - but they don’t usually have such a profound impact as the coronavirus pandemic has.

- It caused a massive health crisis claiming at least 1.5 million lives, with many countries seeing at least two waves.

- It kept many confined to their homes and shut down big chunks of economies, driving the biggest fall in economic activity since the end of WW2 if not the Great Depression, with major economies seeing peak to trough falls in GDP of 10% to 20% and the Australian economy contracting by 7.3%. This saw unemployment surge and inflation plunge.

- Share markets had 35% or so plunges in February/March, commodity prices collapsed with the oil price going negative at one point as investors sought out safe havens like bonds.

- And it, or rather the poor management of it, lost President Trump the US election (even though he denies losing).

The pandemic also increased tensions with China and is likely to leave a longer term mark with a further set back to globalisation, more social tensions, bigger government and public debt, the risk that massive money printing eventually results in higher inflation, faster structural change due to an accelerated embrace of technology, more consumer caution and a lower population in Australia due to the hit to immigration.

However, while 2020 is a year many of us would prefer to forget and coronavirus continues to wreak havoc in much of the world, the end result for economies hasn’t been as bad as had been feared back in March and April. This reflected a combination of:

- An unprecedented and rapid fiscal stimulus that protected businesses, jobs and incomes;

- Debt forbearance schemes that headed off defaults;

- Massive monetary stimulus that saw interest rates plunge;

- Social distancing which has helped contain the virus enabling some reopening – albeit better in some countries (eg, Asia, Australia and New Zealand) than others.

This enabled economic activity to bounce back faster than expected through the second half as restrictions eased, even though it wasn’t always smooth (eg, in Victoria or in Europe and the US) and we still have a way to go to full recovery. As a result investment markets also performed far better than feared.

- While share markets plunged in March during the early stages of the pandemic, they then rebounded thanks to massive fiscal stimulus and reopening, low interest rates and bond yields that made shares cheap as well as good news on vaccines that enabled investors to look forward to further recovery in 2021.

- This all drove solid returns in global shares with Asian and US shares (which were boosted by a relatively a high exposure to IT and initially health care stocks which benefitted from the pandemic) outperforming. The more cyclical Japanese and European markets underperformed.

- Australian shares also unperformed due to the greater cyclical exposure of the Australian share market.

- Government bonds had reasonable returns as yields fell in response to central bank rate cuts and bond buying along with safe haven demand – which drove capital growth.

- Real estate investment trusts had negative returns as a result of a hit to property space demand and rents.

- It was the same story for unlisted commercial property and infrastructure, although industrial property did well.

- Home prices fell 3% around mid-year but then started to recover as low interest rates, government support measures and reopening swamped the hit to immigration, weak rental markets and higher unemployment. Houses, outer suburbs &amp; regions benefitted from “escape from the city.”

- Cash and bank term deposit returns were poor as the RBA cut the cash rate to just 0.1%.

- After a pandemic driven plunge to $US0.55 in March the $A rose reflecting higher commodity prices and a falling $US.

- Due to reasonable share returns but weak property and infrastructure returns balanced super funds have so far seen low but positive returns – but this followed a strong 2019.

<h2>2021 – recovery</h2>

Just as 2020 was dominated by the pandemic and this determined the relative performance of investment markets and stocks, 2021 is likely to be dominated by the recovery. This in turn will have a profound effect on investment markets. There are four reasons for optimism. First, massive fiscal and monetary stimulus is still feeding through economies with very high saving rates indicating pent up demand that can be spent once confidence improves, which will also help offset the wind down of some support measures like JobKeeper in Australia.

Second, the news on vaccines is positive. While uncertainties remain, by end 2021 or early 2022 there is a good chance the world will be approaching a degree of herd immunity.

Third, a new US president in Joe Biden should usher in a period of more stable and expert based policy making in what is still the world’s biggest economy. In particular, it will likely head off a return to trade wars that could have wreaked havoc in 2021.

A more diplomatic US approach to resolving differences with China could also help Australia move down a path to resolving its own differences with China.

Finally, Australia along with NZ has navigated 2020 remarkably well, controlling coronavirus far better than most comparable countries and seeing its politicians and institutions work well together. It also led to structural reforms that may help future growth (eg, property tax reform in NSW, IR reform nationally).

The combination of vaccines, policy stimulus and pent up demand is expected to see a supercharged cyclical rebound in global GDP of around 5.2% and 4.5% in Australia in 2021. This is likely to see strong double-digit rebounds in profit growth.

Inflation is likely to remain weak, reflecting still high levels of spare capacity which in turn means interest rates will remain low. While this is not good for those relying on bank interest, it benefits the household sector as a whole (with debt exceeding bank deposits) &amp; corporates, eases the servicing of high public debt levels and makes shares cheap. So, in a way we remain in the sweet spot of the investment cycle with improving growth but low rates. In Australia, the cash rate is expected to end 2021 at 0.1% but there is still a risk of more quantitative easing.

<h2>Implications for investors</h2>

Shares are at risk of a short term correction after having ran up so hard recently and 2021 is likely to see a few rough patches along the way (much like we saw in 2010 after the recovery from the GFC), but looking through the inevitable short term noise, the combination of improving global growth and low interest rates augurs well for growth assets generally in 2021. In particular, we are likely to see a continuing shift in performance away from investments that benefitted from the pandemic and lockdowns - like US shares, technology and health care stocks and bonds - to investments that will benefit from recovery - like resources, industrials, tourism stocks and financials.

- Global shares are expected to return around 8%, but expect a rotation away from growth heavy US shares to more cyclical markets in Europe, Japan and emerging countries.

- Australian shares are also likely to be relative outperformers helped by better virus control, enabling a stronger recovery in the near term, stronger stimulus, sectors like resources, industrials and financials benefitting from the rebound in growth and as investors continue to drive a search for year yield benefitting the share market as dividends are increased resulting in a 4.4% grossed up dividend yield. Expect the ASX 200 to end 2021 back around 7200.

- Ultra-low yields &amp; a capital loss from a 0.5-0.75% or so rise in yields are likely to result in negative returns from bonds.

- Unlisted commercial property and infrastructure are ultimately likely to benefit from a resumption of the search for yield but the hit to space demand and hence rents from the virus will continue to weigh on near term returns.

- Australian home prices are being boosted by record low mortgage rates, government home buyer incentives, income support measures and bank payment holidays but high unemployment, a stop to immigration and weak rental markets will likely weigh on inner city areas and units in Melbourne and Sydney. Outer suburbs, houses, smaller cities and regional areas will see stronger gains in 2021.

- Cash and bank deposits are likely to provide very poor returns, given the ultra-low cash rate of just 0.1%.

- Although the $A is vulnerable to bouts of uncertainty about coronavirus and China tensions and RBA bond buying will keep it lower than otherwise, a rising trend is still likely to around $US0.80 over the next 12 months helped by rising commodity prices and a cyclical decline in the US dollar.

<h2>What to watch?</h2>

The main things to keep an eye on in 2021 are as follows:

- Coronavirus and vaccines – problems with vaccines or their deployment could result in ongoing waves of new coronavirus cases &amp; slower recovery than we are assuming.

- US politics – a Democrat victory in Georgia’s January 5 US senate elections would risk more of a leftward tilt under Biden, although conservative Democrat senators will limit this. Trump could also try to throw a spanner in the works.

- China tensions – we expect a shift to a diplomatic approach here but there is a risk of misjudgement on either side which could start to slow our longer-term economic growth rate.

- Inflation – we are assuming it remains weak but if it rebounds faster than expected it will mean faster increases in bond yields and downward pressure on asset valuations.

- The hit to immigration in Australia – it’s hard to see 700,000 less immigrants out to mid-2023 having no impact on inner city Sydney and Melbourne property prices.

Dr Shane Oliver 
Head of Investment Strategy and Chief Economist AMP Capital
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Just as 2020 was dominated by the pandemic and this determined the relative performance of investment markets and stocks, 2021 is likely to be dominated by the recovery

soliver

Outer suburbs, houses, smaller cities and regional areas will see strongest property gains in 2021: Shane Oliver

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Capital city dwelling prices will see strong gains in 2021, with Perth leading the way from Sydney, SQM Research boss and economist Louis Christopher forecasts.
Christopher's Housing Boom and Bust Report 2021 has put forward four scenarios, which will determine how the housing markets across the country perform next year.
The base forecast, or scenario one, would see the capital city average dwelling price rise between five to nine per cent, with Perth forecast to lead the capitals with growth between eight and 12 per cent on the back of an ongoing recovery in the base commodities market, further encouraging mining-based project investment.
Sydney would closely follow with seven per cent to 11 per cent gains, namely driven by the proposed NSW Stamp Duty/Land Tax opt-in for home buyers. Adelaide will closely follow Sydney with six per cent to 10 per cent.
Melbourne is set for the most modest rises, up anywhere between two per cent and six per cent, due in part to the extended lockdowns in 2020.
The ongoing international border closures combined now with evidence of current interstate migration outflows will also put Melbourne at a disadvantage
The dwelling price gains in the base case are forecast on the premise that the cash rates remains unchanged at 0.1 per cent, a widely expected scenario, QE expands, and a third COVID-19 wave would be contained by more lockdowns.
It also assumes ongoing support from the Federal Government, with JobKeeper extended to September quarter 2020, and a progressive roll out of a COVID vaccine. 
The report notes that the extension of JobKeeper is regarded as essential for the ongoing momentum of the housing recovery, which appears to have formed from the end of the September Quarter 2020.
If JobKeeper is scaled back too prematurely, the housing market recovery in Sydney and Melbourne could stall, SQM suggest.
Louis Christopher said the national housing market has responded to the unprecedented economic stimulus packages as well as record low lending rates.
To enlarge, <a href="https://www.propertyobserver.com.au/images/2020/DEC/3/SQM%202021.jpg" target="_blank">click here</a>.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2020/DEC/3/SQM%202021.jpg" alt="">
"Auction clearance rates have lifted since mid-year and various dwelling price measurements have started to record price rises," Christopher noted, adding that it is likely that the housing market will gain further momentum on the back of increased investor activity, especially from those who seek some sort of income yield.  
He does however suggest they have some misgivings on the longer-term consequences of these new stimulatory policies.
"If housing is regarded as an asset class that is not allowed to fall, Australia could have some rather serious social issues surrounding home ownership rates over the long term. In the meantime, risks have risen that this new recovery will be one of the more speculative rises seen in some time.
"Let’s keep in mind unemployment remains elevated and net migration is expected to be negative next year. We have a surplus of inner-city units in our two largest cities. And if there was another negative macro event in 2021, there is not much room left to cut lending rates further.
“Many in the community are starting to think they cannot ever lose on housing. That the Government will always be there to step into the housing market, if need be. And that is a scary idea...” 
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jrobinson-rf4aSBido9

Capital city dwelling prices to rise between 5% to 9% in 2021: SQM's Louis Christopher

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The difference between buying a house and buying a unit rental property has never been more pronounced.
RiskWise market research clearly showed that while houses show better prospects, some sectors of the property market remained high risk, particular inner-city apartment areas which were oversupplied and experiencing falling rents as Australians, many now able to work remotely, were seeking lifestyle properties and often avoiding higher density locations.
Mr Peleg said there were many opportunities for buyers looking for houses with high land value as a proportion of the property value, and a strong component of scarcity, especially if they intended to hold on to the property for several years or longer.
“In recent weeks there has been a material improvement in buyer sentiment and key data with a prime example being the relatively high auction clearance rates for houses in Sydney, with preliminary results that have been consistently well above the 70 per cent mark during the past four weeks. Melbourne’s market, however, remains dormant, for now,” he said.
Pete Wargent of BuyersBuyers.com.au, a national marketplace now offering affordable buyer’s agency services to all homebuyers, said that there has been a notable shift in enquiries over the past year.
“Low-maintenance units have often been popular with investors and non-resident buyers, but these buyer numbers are well down from their cyclical peaks. Most homebuyers are looking at houses at the present time, and in part this is a shift away from density at a time when many are seeking space” Mr Wargent said.
Mr Peleg of RiskWise said, “it’s important to distinguish between the two capital cities and there is a marked difference. Sydney property is strongly forging ahead with auction clearance rates tracking at levels similar to those of 12 months ago."
“The same cannot be said for Melbourne, especially due to the second wave of the COVID-19 which had a major and immediate impact. Prices in Melbourne have declined by about 6 per cent since their peak in early April 2020, according to CoreLogic, and this is the largest fall recorded amongst all capital cities."
“Despite this, Melbourne’s houses have better long-term prospects than Sydney’s. Indeed, we expect 2021 to be a strong year for houses in Melbourne, with significant capital growth forecast to play out.”
Mr Wargent of BuyersBuyers.com.au said ultra-low interest rates would drive price increases once the pandemic is over when the long-held link between the cost of borrowing and housing prices would reassert itself.
In addition, Mr Wargent said that Melbourne is more affordable than Sydney in terms of house-to-income and mortgage serviceability ratios while ABS data also projects that in 2026 Victoria’s capital will have a larger population than that of New South Wales.
Because of the strong population growth, Melbourne had enjoyed very strong capital growth until February 2020, Mr Wargent said.
Mr Peleg of RiskWise said, “while the second wave of COVID-19 created major volatility in Melbourne, RiskWise asserts that following the end of the pandemic, the Melbourne market will have similar projections to Sydney thanks to chronic undersupply increasing land and house values (while for units the oversupply increases both equity and serviceability risk)”.
In Conclusion:
Mr Peleg said the current ultra-low interest rates had created a unique environment where buying a house in many areas was cheaper than paying rent on one.
So while things look gloomy at this point of time, certainly in Melbourne, the market will likely bottom in the first half of 2021 and then the traditional connection between low interest rates, dwelling price growth, and the continuous chronic undersupply of family-suitable properties, with good access to employment hubs in popular areas, will drive them up relatively quickly
Land scarcity has been and will continue to be a major driver in land appreciation and, consequently, the appreciation of house values.
However, investors should consider family-suitable properties as opposed to rental apartments which will continue to carry a high level of risk in relation to both price movements (equity risk) and serviceability (cash flow risk). This risk of negative equity has significantly increased across the country.
Poor economic growth and a soft employment market will see the attractiveness of Australia as a destination fall in the short term. Therefore, without a significant improvement in employment conditions in the next few years, the risk to the rental apartment sector is likely to remain high.
DORON PELEG is the RiskWise CEO 
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Houses projected to bounce back mid-2021 with higher risks for units: RiskWise's Doron Peleg

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Westpac are the latest bank to soften their house price decline forecast amid a resilient real estate market over COVID-19.
They had been predicting a 10 per cent fall in prices nationally from the peak in April to June 2021, with increase of around four per cent per annum over the following two years.
They expected Melbourne to be hit the worst, down -12 per cent, Sydney back -10 per cent and Brisbane and Adelaide -8 per cent.
But now, with real estate seemingly weathering the COVID-19 storm, Westpac forecast just five per cent declines between April and June next year.
There have already been -2.3 per cent declines nationally, according to CoreLogic's data.
No better news for locked-down Melbourne, whose prices are still predicted to be down -12 per cent. 
To enlarge, <a href="https://www.propertyobserver.com.au/images/2020/9/17/Westpac%20forecast.jpg" target="_blank">click here</a>.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2020/9/17/Westpac%20forecast.jpg" alt=""> Source: Westpac
But now they see Sydney contract in line with the national decline of -5 per cent, Brisbane back -2 per cent and Adelaide now to actually see two per cent gains.
Hassan and Evans say they have changed their view based on two reasons; a more substantial boost from lower interest rates, especially low fixed rates, and a milder than expected recession.
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"Westpac recently revised up its growth forecasts for the second half of 2020, from 2.8% to 4%. The new outlook reflects a view that NSW (+5%), QLD, (+5%), SA (+5%) and WA (+7%) would rebound strongly from the collapse (–7%) in the June quarter based on their milder and briefer COVID disruptions," Hassan and Evans note.
To enlarge, <a href="https://www.propertyobserver.com.au/images/2020/9/17/Westpac%20mortgage%20interest%20rates.png" target="_blank">click here</a>.
<img src="https://www.urban.com.au/images/2020/9/17/Westpac%20mortgage%20interest%20rates.png" alt=""> Source: Westpac
They even suggest the economic impact Victoria’s ‘second wave’ lockdown also "appears to be less severe than expected."
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They said they see the house price profile unfolding in four distinct stages, with the first stage largely passed.
That was the initial impact on prices from the collapse in economic activity in the June quarter which saw -4.6 per cent declines in Melbourne, -2.6 per cent in Sydney and Perth, -0.9 per cent in Brisbane and -0.1 per cent in Adelaide.
"However, the pace of deterioration outside of Melbourne has been milder than we expected back in March", Hassan and Evans write.
"The second stage, which will cover the December and March quarters, will be a period of relatively stable prices, possibly with some modest increases, although Melbourne will be at least one quarter behind the other states and will still be experiencing falls in prices in the December quarter.
"The third stage will see some limited resumption of downward pressure on prices through 2021, as we see an increase in ‘urgent’ or distressed sales relating to borrowers struggling or unable to resume mortgage repayments.
"Again, more adjustment is likely in Melbourne than the other cities.
"The fourth phase will come once this selling pressure has worked through the system and prices lift again."
They say the recovery will be supported by sustained low rates, which Hassan and Evans suggest are likely to be even lower than current levels, as well as ongoing support from regulators, substantially improved affordability, sustained fiscal support from both federal and state governments and a strengthening economic recovery.
Hassan and Evans even expect a vaccine for COVID-19 to become available in 2021.
 
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Westpac soften house price forecast, now predict five per cent peak to trough declines

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EXPERT OBSERVER
The RBA has been the focus this week given the August Board meeting and today’s release of their latest Statement on Monetary Policy.
Unsurprisingly, <a href="https://rba.gov.au/media-releases/2020/mr-20-18" target="_blank">the RBA decision statement</a> maintained a cautious view on the global economy, noting that the outlook remains highly uncertain despite the worst of the contraction having passed.
The risks for the domestic economy were also highlighted: the growth view for 2020 maintained at -6.0% as the 2021 gain was revised down to +5%; and the end-2020 unemployment rate forecast revised up from 9% to 10% on the expectation that Victoria’s lockdown will result in further job losses.
In light of these factors, the Governor emphasised the RBA’s commitment to the 3-year bond yield target of 0.25% by announcing that CGS purchases would re-commence after the August meeting.
The statement also outlined the ongoing evolution of the Term Funding Facility, highlighting the liquidity support it has and will provide to the economy.  
<a href="https://www.propertyobserver.com.au/https://westpaciq.westpac.com.au/Article/44488" target="_blank">Westpac’s own growth view</a> remains more constructive on 2020 than the RBA, but we believe 2021 will disappoint.
Having revised our 2020 growth target from -4.2% to -4.7%, principally due to developments in Victoria, while keeping our +3.0% expectation for 2021 unrevised, we believe the Australian economy will end 2021 with a level of GDP 1.8ppts below that at December 2019. This compares to -1.0% <a href="https://www.rba.gov.au/publications/smp/2020/aug/economic-outlook" target="_blank">on the RBA’s baseline forecasts</a>.
On either view, labour market slack is set to become entrenched for an extended period. From its 10% peak later this year, the RBA anticipates that the unemployment rate will only slowly decline to around 7% at December 2022.
A full discussion of Westpac’s revised forecasts, the outlook for policy and the risks was provided by <a href="https://westpaciq.westpac.com.au/wibiqauthoring/_uploads/file/Australia/2020/August/er20200805BullAustraliasGrowthProspects.pdf" target="_blank">Chief Economist Bill Evans</a> this week.
The release of our <a href="https://westpaciq.westpac.com.au/wibiqauthoring/_uploads/file/Australia/2020/August/WestpacMarketOutlookAugust2020.pdf" target="_blank">August Market Outlook</a> publication this week also gave cause to reassess our global views. Most prominent are the divergent economic prospects of the US and China as well as the rapid depreciation of the US dollar currently underway.
Beginning with the US and China, the response of authorities in each jurisdiction to COVID-19 was polar opposite; unsurprisingly, so are the economic consequences now being seen.
Whereas China regained the activity lost in Q1 in just three months, the US looks likely to end-2021 with a level of GDP almost 3.0% lower than end-2019. Further, while short and medium-term risks for China are to the upside, they are most certainly skewed down in the US.
While out of the spotlight, Europe is somewhere in between, still having to suppress small but frequent COVID-19 outbreaks, but with the promise of co-ordinated fiscal support and an emerging global recovery getting brighter by the week.
That then brings us to the US dollar downtrend. The scale of the decline we have seen to date from the peak levels seen in April and May has been broadly in line with our expectations.
But, as is often the case in financial markets, the speed of the move has been much more rapid than we anticipated. As a result, the August Market Outlook includes meaningful revisions to our US dollar expectations against Euro and the British Pound.
The US dollar DXY index is now expected to retrace most of its gains since 2018, falling to 90.5 by end-2021. The risk remains that this move occurs quicker than forecast and/ or is more pronounced.
The gains we anticipate for China’s Renminbi highlight the promise of recovery for nations that have suppressed COVID-19’s spread.
While US/China trade tensions loom, China has ample trade opportunities before it within the Asian region, where economic development prospects remain strong. 
ELLIOT CLARKE is a senior economist at Westpac 
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Downward forecast revisions highlight enduring uncertainty: Elliot Clarke

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The NAB have forecast an upcoming stabilization in the housing market, but suggest a flat market in the near future.
"NAB's view is that prices will stabilise in the near term, and remain broadly flat over the next year or so," the big four bank advised.
They had previously expected further falls of around five percent in Sydney and Melbourne.
NAB expect both Sydney and Melbourne to see little change in 2020. They forecast total house price declines of 4.4% over 2019 in Sydney and 5.1% in Melbourne.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2019/7/17/NAB%20House%20Price%20Forecasts.jpg" alt="">
Peak to trough losses in Sydney looks to be around 15% and Melbourne around 11%.
Hobart is forecast to be the strongest performer in 2019 and 2020.
NAB forecast it will be the only capital city with house price growth next year.
The NAB Residential Property Survey for Q2 2019 saw an increase in market sentiment following the federal election.
The seven point jump took the NAB Residential Property Index to a 12 month high, although it still sits in the negative.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2019/7/17/NAB%20Residential%20Property%20Index.jpg" alt="">
Future expectations improved sharply.
"The average survey expectation now is for basically flat national house prices in the next 12 months, reversing expectations for further declines in the last survey," NAB suggested. 
NAB are the second big four bank to amend their house price forecast following a slowing in house price declines.
ANZ <a href="https://www.urban.com.au/news/101380-anz-sees-bottoming-of-the-housing-market-in-coming-months" target="_blank">amended their forecast</a>, however suggested, after the imminent bottoming of the market, there will be growth in the bank end of 2019 and prices will jump around three percent over 2020.
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