Immigration slump to impact housing demand
In current challenging economic climate, a lot of borrowers and investors have been asking Pixel Finance, ‘Is this the right time to purchase real estate or will the prices come down in the short to medium term?’.
There are various factors that impact the housing market and immigration is one of those factors having a direct impact on the demand.
Covid 19 and subsequent travel restrictions aimed at curbing its spread, resulting in subdued immigration, are threatening to lock out demand for housing, intensifying downside risks from a rising unemployment rate.
Prime Minister Scott Morrison, during an address to the National Press Club late last month, said the economic impact of Australia’s reduced migration intake was a “key topic of discussion” between all levels of government. The government is expecting net overseas migration to fall to approximately 34,000 in 2020-21, well below levels needed to maintain GDP growth – estimated at around 160,000 to 210,000.
According to AMP Capital chief economist Shane Oliver, the slowdown would drag Australia’s population growth down from 1.4 per cent in the December quarter to 0.4 per cent, spurring a supply and demand imbalance in the housing market.
“Our rough estimate is that underlying demand for housing will be reduced by around 80,000 dwelling a year, unless a way is quickly found to allow immigrants to return,” he said.
ANZ Research recently stated that it expects Australia’s major capitals to bear the brunt of the decline in overseas migration.
“This drop in population growth will remove a major driver of economic growth and housing demand, at least for a period,” the research group warned.
“In the year to June 2019, Sydney’s population grew by 87,000, with 85 per cent of those newcomers being overseas migration,” ANZ Research continued.
“In Melbourne, the numbers are also significant, with 77,000 overseas migrants accounting for 68 per cent of the total population growth of 113,000.”
The economic hit from the COVID-19 crisis has already triggered declines in property prices, with the latest CoreLogic hedonic home value index revealing that national home values slipped 0.4 per cent in May – the first monthly decline since June 2019.
However, recent price falls have been milder than initially anticipated, prompting Mr Oliver to revise his forecast to reflect a softer landing for the housing market.
Mr Oliver was initially projecting a peak-to-trough decline in dwelling values of up to 20 per cent. However, according to the economist, such a scenario is now improbable.
“To get these worst-case scenarios would require a ‘second wave’ of coronavirus cases and so a renewed shutdown or another down leg in the economy in response to a surge in bankruptcies.
Mr Oliver’s new base case is for national average prices to fall by between 5 to 10 per cent throughout 2020 and into 2021, with Australia’s largest capitals to bear the brunt of the downturn.
Source: Charbel Kadib @ mortgagebusiness
