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18-04-2015, 03:05 PM
Goldman tips housing surplus by 2017 as growth slows
Robert Harley
430 words
17 Apr 2015
The Australian Financial Review
AFNR
English
Copyright 2015. Fairfax Media Management Pty Limited.
Australia will have a housing surplus by 2017, says one of those who predicted the current surge in housing activity, Goldman Sachs head of macro-research in Australia, Tim Toohey.
The challenge from 2017 onwards, he writes, will be to "normalise interest rates" - in other words raise interest rates - just as underlying housing demand is weakening.
Price falls are possible. The managing director of property and building forecasters BIS Shrapnel, Robert Mellor, said that in markets with significant excess supply, prices could fall 5-10 per cent.
The new Goldman Sachs report, one of the first to question the population assumptions behind the housing boom, notes that population growth is slowing. By the end of 2017, Australia will have 530,000 fewer people than is estimated by the widely-used Australian Bureau of Statistics Series B projections.
The birth rate is at a historic low, deaths are at historic highs and net migration is "falling fast", so that instead of population growth of 1.7-1.8 per cent a year in 2015-17, Mr Toohey estimates the growth will more likely be 1.25 per cent a year.
The slowdown in population growth will have an effect on economic growth, with Goldman Sachs revising potential economic growth in 2015-17 down from 2.9 per cent to 2.5 per cent.
And it will have a dramatic effect on housing demand, with Goldman Sachs revising an estimated shortage of 140,000 homes in 2017 into a 75,000 surplus.
Other analysts have also forecast a slowdown in population growth, though less starkly than Goldman Sachs. In a February note, Bank of America Merrill Lynch economist Alex Joiner forecast that as migration slowed, population growth would decelerate from 1.6 per cent a year to 1.4 per cent.
The slowdown would, "at the margin" reduce housing demand. "By mid-2015 the construction cycle will likely have peaked in any case, with the only question being as the rate of its decline," BAML wrote.
BIS Shrapnel's Mr Mellor said Goldman Sachs was being overly pessimistic on migration. He estimates net migration will bottom out at 2016-17 at 150,000 compared 235,000 in 2012-13.
"The story is right but they might be overstating the downturn, with rising levels of overseas students, and rising numbers of holiday visas offsetting the weakness in working visas and the return home of the New Zealanders," he said.
BIS Shapnel is no longer pointing to undersupply in many metropolitan markets.
Fairfax Media Management Pty Limited
Document AFNR000020150416eb4h0000l
Robert Harley
430 words
17 Apr 2015
The Australian Financial Review
AFNR
English
Copyright 2015. Fairfax Media Management Pty Limited.
Australia will have a housing surplus by 2017, says one of those who predicted the current surge in housing activity, Goldman Sachs head of macro-research in Australia, Tim Toohey.
The challenge from 2017 onwards, he writes, will be to "normalise interest rates" - in other words raise interest rates - just as underlying housing demand is weakening.
Price falls are possible. The managing director of property and building forecasters BIS Shrapnel, Robert Mellor, said that in markets with significant excess supply, prices could fall 5-10 per cent.
The new Goldman Sachs report, one of the first to question the population assumptions behind the housing boom, notes that population growth is slowing. By the end of 2017, Australia will have 530,000 fewer people than is estimated by the widely-used Australian Bureau of Statistics Series B projections.
The birth rate is at a historic low, deaths are at historic highs and net migration is "falling fast", so that instead of population growth of 1.7-1.8 per cent a year in 2015-17, Mr Toohey estimates the growth will more likely be 1.25 per cent a year.
The slowdown in population growth will have an effect on economic growth, with Goldman Sachs revising potential economic growth in 2015-17 down from 2.9 per cent to 2.5 per cent.
And it will have a dramatic effect on housing demand, with Goldman Sachs revising an estimated shortage of 140,000 homes in 2017 into a 75,000 surplus.
Other analysts have also forecast a slowdown in population growth, though less starkly than Goldman Sachs. In a February note, Bank of America Merrill Lynch economist Alex Joiner forecast that as migration slowed, population growth would decelerate from 1.6 per cent a year to 1.4 per cent.
The slowdown would, "at the margin" reduce housing demand. "By mid-2015 the construction cycle will likely have peaked in any case, with the only question being as the rate of its decline," BAML wrote.
BIS Shrapnel's Mr Mellor said Goldman Sachs was being overly pessimistic on migration. He estimates net migration will bottom out at 2016-17 at 150,000 compared 235,000 in 2012-13.
"The story is right but they might be overstating the downturn, with rising levels of overseas students, and rising numbers of holiday visas offsetting the weakness in working visas and the return home of the New Zealanders," he said.
BIS Shapnel is no longer pointing to undersupply in many metropolitan markets.
Fairfax Media Management Pty Limited
Document AFNR000020150416eb4h0000l