Experts soften the forecast after the federal election result

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The shocking electoral victory of the Coalition over the weekend provided an unexpected blow to the ruined real estate market of Australia.

The chief economist of the REA group, Nerida Conisbee, said that after the slowdown in April declines, house prices were expected to start flattening in May and perhaps even increase by the end of June.

Ms Conisbee described the victory of the Coalition, combined with the reduction proposed by 7% of the interest rate by the APRA and the cut in the reference rates of the Reserve Bank, as "excellent news" for the market real estate.

"Certainly on the field the real estate industry feels much more positive," he said. "We will not go back to where we were and this is good news because we still have great accessibility problems in Sydney and Melbourne."

Despite Prime Minister Scott Morrison's proposed 5% deposit, Ms. Conisbee said the first home buyers were "the biggest losers" from the Coalition victory "but everyone else is neutral or winning".

"The first home buyers probably find it disappointing, they would have been the main beneficiaries of the changes in the negative gear system (proposed by the Labor Party), the prices would have continued to fall," he said.

"But at the same time we saw a rebound in the first homebuyer business and the banks are loosening. I think the first home buyers have to be very careful with how much they borrow."

The two major risks, he said, were that low-cost housing prices would start to rise much more than the average, and that the first home buyers would borrow too much and overheat if unemployment increased.

"The rate cuts are excellent for the property but they are bad news because the economy is weak," he said. "If we witness an escalation of trade problems with China and the United States, this could largely affect us. It's a lot of uncertainty."

House prices in NSW and Victorian capitals are now 14.5% and 10.9% lower than their respective peaks in July and November 2017, according to CoreLogic, their worst falls recorded.

The chief economist of AMP Capital, dr. Shane Oliver has revised his house price forecasts from a total fall of 25% in Sydney and Melbourne and 15% nationwide to 19% in Sydney, 15% in Melbourne and 12 per cent nationally.

"The combination of eliminating the threat with proprietary tax concessions, previous interest rate cuts, financial aid for first home buyers and APRA relaxes its test points of the interest rate of 7% to the prices of the houses that are touching first and higher than we expected "Dr. Oliver said on a note Thursday.

But he warned that the negatives that weigh on the real estate market "remain significant".

"Given the still high house prices and poor accessibility, still very high levels of debt, stricter lending standards and rising unemployment, a rapid return to the conditions of the economic boom is very unlikely," he said.

"In particular, credit conditions are still tight and real estate financing continues to fall with a brief rebound in February, causing further declines in March and the start of the Comprehensive Credit Reporting which will see banks cracking down on borrowers with more loans not declared ".

The dott. Oliver said that the biggest risk is that Australia "slips into a downward spiral when the housing crisis – perhaps in conjunction with a global collapse – triggers a surge in unemployment that triggers the increase in insolvencies and a further collapse in house prices that causes 30 percent more falls in the prices of national properties ".

"This is still a risk, but we remain of the opinion that it will be avoided," he said. "The crisis in the housing cycle will lead to the loss of around 60,000 jobs according to our estimates".

Cameron Kusher, head of research at CoreLogic, said the falls in Sydney and Melbourne could be more similar at 17-18% and 15-16%, "a little less than 20% we expected".

"At the national level the market is down by around 9%, it will probably end up representing around 11-12%," he said.

"We expect the market to end towards the end of this year. All three (Coalition victory, rate cuts and service changes) are positive overall. I'm not too excited, I don't think it will lead to a rapid rebound, but certainly will bring the fund first ".

Citi has also updated its forecasts from an annual 10% drop by June to 7.5%. "Furthermore, we now expect year-on-year house prices to show 3% growth by 2020, while previously we had no increase," Citi economist Josh Williamson said in a statement this week.

Williamson also cited the high probability of interest rate cuts in June and August, the first deposit scheme for government home buyers and the changes proposed by the APRA to rate test 7% interest.

"According to our banking analysts this will lead to a 10 percent increase in borrowing capacity, making credit available to owner-occupying borrowers who have previously been denied loans but also for the benefit of investors," he said.

"In combination, these changes should increase the actual demand for housing and moderate the peak-to-negative cycle in housing prices."

SQM Research founder Louis Christopher also revised his forecasts. "So far the market has fallen by another 3.8% this year," he said in a statement this week.

"Our forecast of the base case was for a fall in the total price of the house by 3-6%. It would be fair to say that until last weekend the market was heading towards the bottom of the forecasts".

The surprise of the Coalition now meant that "probably the national real estate market will register a fall in prices for this calendar year between 1% and 4%", according to Christopher.

"We believe that liberal victory means increasing the trust of buyers in the market that was seriously lacking due to the anticipation of the negative tax rate and capital gains tax by a Labor government," he said.

Combined with the ARPA and RBA statements this week, Christopher said another rapid boom was not ruled out despite numerous housing market obstacles.

"If we were to see a rate cut of 50 basis points or more in the next two or three months, combined with (the) announcement of the APRA, all the cards are off the table by 2020," he said.

At the beginning of this week, the founder of Bronte Capital, John Hempton, foresaw price drops up to 85% in "non-aspirational" suburbs in Sydney, Melbourne and smaller cities like Newcastle and Wollongong.

frank.chung@news.com.au

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