The current housing market recovery is the weakest cyclical upswing since the late 1980s, according to ANZ.
The following chart, prepared by ANZ in its March quarter research report, compares the current upswing in house prices (which began in February last year) with four other cyclical upswings.Click to enlarge
The previous housing market upswing between February 2009 and February 2010 was both the most rapid and shortest-lived, following on from 425 basis points cut from the cash rate between September 2008 and April 2009 as the RBA took drastic steps to keep credit markets flowing in the wake of the GFC.
It also followed the availability of the first home owner boost scheme, which provided an additional $7,000 for first-home buyers buying existing homes and $14,000 for those building or buying new homes.
The scheme ran from October 2008 to December 2009 (the grant was halved between October 2009 and December 2009) with the contention being that it artificially inflated house prices as vendors capitalised on rising demand from eager first-home buyer numbers.
The current modest recovery follows an expected 225 basis points being cut from the cash rate since November 2011. This reflects ANZ's forecast of a further 50 basis points cut from the cash rate in 2013 on top of the 175 basis points already cut to date.
"If the current cycle were to only have 175 basis points then our starts/dwelling investment forecast would be even softer," says ANZ's head of property research Paul Braddick.
ANZ economists Ivan Colhoun and Katie Dean, authors of the Australian portion of the quarterly report, say while there are some moderate signs of improvement in residential building approvals, this sector still faces “serious constraints”.
“Soft house price expectations, poor housing deposit affordability for first-home buyers, relatively tighter credit conditions for developers, difficult approval processes and limited land availability and accessibility all mean that this is prospectively the weakest cyclical recovery of the past five housing upswings,” they say.