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Article by Su-Lin Tan | Source: Australian Financial Review 

May 28, 2019

House prices will stop falling in the second half of 2019, HSBC says, as the bounce in auction activity last week continues to drive up housing sentiments.

In a note on Tuesday, HSBC says the exuberance in auction trading last week – on the back of post-election confidence and APRA’s signal to make borrowing cheaper – is a sign the housing market is starting to stabilise.

The orderly housing correction thus far also bodes well for an impending recovery.

“Most impressive, is how orderly the housing market correction has been so far. Despite a significant fall in housing prices, there have been few signs of distressed sales and loan arrears have remained low,” HSBC chief economist, Australia, NZ & Global Commodities Paul Bloxham said.

“This has largely reflected that the jobs market has remained strong, but also that household debt had been well allocated.”

Additionally, consumer sentiment surveys also indicate households are looking to return to the market.

A cash rate cut – expected next Tuesday – along with an expectation of a rise in household incomes should lock in the market’s path to a recovery, Mr Bloxham said.

HSBC forecasts that after prices stop falling this year, they will remain roughly flat in 2020, with any growth no higher than 4 per cent.

“A hard landing is still a risk, but, in our view, this would require a sharp rise in the unemployment rate, most likely triggered by a negative shock from abroad,” Mr Bloxham said.

Data from Westpac corroborated HSBC’s outlook although Westpac said the market was still very “weak”. Sydney prices have fallen nearly 15 per cent from the peak of the market in 2017, while Melbourne has fallen over 10 per cent.

Like HSBC, Westpac said better auction trading, a likely cash rate cut and also better first home buyer policies would likely rev up demand. The government’s recent First Home Loan Deposit Scheme, which will underwrite first-home buyer loans with a 5 per cent deposit, is expected to drive up borrowing activity.

“Prices have continued to decline but at a slower pace,” Westpac said in a note on Tuesday.

“With the Reserve Bank now all but certain to deliver a 25 basis point rate cut on June 4 – the first since August 2016 – consumer confidence looks set to get a ‘shot in the arm’ next month.”

However, Westpac cautioned on a premature reaction to last week’s buoyant auction results saying low transaction volumes gave a weak reading and warned the auction markets were still coming from a much weaker starting point than in 2016, at the time of the Reserve Bank’s last round of rate cuts.

Su-Lin Tan reports on housing, commercial real estate and property finance. She also covers China and Asian business, trade and politics. Connect with Su-Lin on Twitter. Email Su-Linat stan@afr.com.au