Westpac Banking Corporation’s (ASX:WBC) Chief Economist Bill Evans gives The Capital Network’s Lelde Smits an outlook for Australia’s property sector and interest rates in 2016.
The Capital Network: Hello I’m Lelde Smits for The Capital Network and joining me today in Sydney at Westpac Banking Corporation’s (ASX:WBC) is the bank’s Chief Economist, Bill Evans. Bill, wonderful to speak with you here.
Bill Evans: Yes, it’s great to be here again.
The Capital Network: Westpac is Australia’s second largest mortgage lender. What is your outlook for property this year?
Bill Evans: We think this year will be a much quieter year than the recent years that we’ve had. If we think back over the last 12 months, Sydney prices and Melbourne prices we’re up around 11/12%, Brisbane by about 4/5% and prices fell in Perth by 4%.
I think next year (2016) Sydney and Melbourne and Brisbane will all be in that 0-5% range. Whereas, in Perth we are concerned we’ll see further falls.
The Capital Network: You mention Sydney and Melbourne. Sydney has traditionally been the stronger of the two, recently Melbourne has been catching up. Is this a trend that you also see continuing this year?
Bill Evans: Look I think both of them will have fairly quiet years. But, I’m certainly not in the camp that says that the weakness we’ve seen in the final quarter of last year, which was in response to two interest rate increases for investors and one interest rate for owner occupiers, and some restrictions on the availability of credit to investors.
I think the impact was a fairly sharp correction to prices in both Sydney and Melbourne in that period, I don’t see any more interest rates increases or restrictions in those terms continuing for next year. So, I think next year will be more of a stable year. But certainly the days of the double digit price increases in those two cities are behind us.
So, I wouldn’t expect to see too much price differentiation in terms of appreciation between Melbourne and Sydney next year.
The Capital Network: Generally that is a fairly muted outlook, but might there be any bright spots across Australia, areas that might defy that muted trend?
Bill Evans: Well I think the two other cities we look at very closely are Brisbane and Perth. Brisbane has lagged Sydney and Melbourne in this particular cycle.
I think if we look at affordability measures Brisbane stands up pretty well at the moment. So, I would expect that Brisbane might do a little better than the 0-5% increase in Sydney and Melbourne. Maybe Brisbane will be in the upper end of that 0-5% range and the others will be in the middle.
We are concerned about Perth. We’ve seen price falls this year. And, there does appear to be a lack of demand there, given that city has been the one that has been most adversely affected by the downturn in mining. So, if I was to be worried about one particular city next year it would be the Perth city.
The Capital Network: And now final question Bill, everyone loves your interest rate outlook. At the beginning of last year you correctly predicted that we were going to be at 2% at the end of 2015. We’re now at the beginning of 2016. Were do you see the key cash rate ending this year?
Bill Evans: Look, markets are expecting the Reserve Bank to cut rates by 0.25% at some stage by around May/June. That’s possible, I am certainly not dismissing that possibility. But at this stage my central view is that rates will be on hold for this year.
The Capital Network: So we’ll be ending the year at 2% as we started?
Bill Evans: At a boring 2%.
The Capital Network: OK well it certainly hasn’t been boring today. Thank you so much for your insights for The Capital Network.
Bill Evans: Thank you very much.