Apparently we're now at the start of a gradual recovery
Agreed.
The only bear in the room is the spectre of rising unemployment. At the end of the day prices are set by the demand/supply balance. Here's MichaelW's quick and dirty synopsis on the current state of these:
Demand
FHB demand is
up due to the FHOG. Will taper or collapse post 1/July.
Investor demand is
soft as they sit it out waiting for a sign of price direction. They're scared about the possible impact on price of rising unemployment.
Second, third, upsizer demand is steady but still subdued from previous levels.
Interest rates have fallen dramatically which has increased affordability dramatically and created a platform for significant increased demand for property at current prices. This has yet to gain significant traction beyond the FHB market.
Credit rationing is limiting the availability of loans to those with poor servicability or insufficient deposit. This is working to partially offset the reduced interest rates in stimulating sales in the residential property market.
Supply
As most would be aware Supply of residential housing stock in Australia is severely constrained. The market is currently under-supplied and with immigration and natural population growth still in place, the under-supply is set to worsen over the coming years.
Impact
You put that lot together and you get a tension between all the positives (low rates, FHB grants, improved servicability, limited supply, increasing population) and all the negatives (credit rationing, fear of increased unemployment). At present the positives are winning the tug-of-war with the negatives but its a close battle. If unemployment spikes as many suspect it will then this might turn the tide of battle for a while. But I'm a simple man and I look at it this way: even if unemployment doubles from 5% to 10% then that's still only a 5% reduction in those able to service loans. Of that 5%, 2% are renters and 2% own their homes outright. So, a doubling of unemployment rates sees a 1-2% reduction in net household loan demand. If unemployment does double then the RBA will lower rates even further. Eventually the 30% of the market which is investors will en masse awaken to the opportunity, realising that their jobs are secure, and re-enter the market.
An increase in demand by 30% of the market will more than offset the decrease in demand by 1-2% of the market.
Its a tug-of-war, but the odds are stacked in favour of more price appreciation in the medium term once the
fear of recession and high unemployment abates. Watch for investors re-entering the market as a strong signal for the next solid leg up in prices.
Just MHO.
Cheers,
Michael