Scott Morrison’s ‘miracle’ victory at the polls, has not only been a historic win for the Liberal Party, but it appears it is already significantly lifting investor sentiment across the country. The shocking come-from-behind election win was the first in a series of three key events, that look set to help bring some stability back into the housing sector.

It had long been feared that a host of Labor policies would stifle an already weak Australian housing market. Almost overnight, that weight appears to have been lifted and things are starting to once again look bullish for property investors.

Clearly, property markets had been in a ‘wait and see’ approach, prior to the election. The hallmark of the ALP campaign was cutting tax breaks to investors, by way of removing negative gearing on established properties. This move was always going to cause a ripple through the sector and was certainly unpopular amongst industry insiders.

When it became apparent late on election day that Labor could not win the election and Bill Shorten conceded to Scott Morisson’s Liberals, one of the biggest cheers came from property investors. They knew full well what the win would do to property prices over the next three years with tax incentives remaining in place for investors.

APRA Winding Things Back

The next two major events of the week came on the Tuesday with the first of which being the Australian Prudential Regulation Authority (APRA) dropping the 7.0% buffer rate placed on borrowers.

When property prices were starting to heat up in 2014, APRA sought to tighten credit particularly for investors (both local and international) and one of the key measures they implemented, was the requirement of borrowers to be able to service their debt based on a 7% rate of interest. This tightened credit conditions considerably and was ultimately one of the reasons, housing markets on the East Coast have since cooled off.

Now given the fact that interest rates are still low and the property cycle is now in a different phase, APRA wrote to the banks, looking to ease those restrictions.

This move alone is a huge boost to housing markets and first home buyers, who in many cases have been priced out of markets like Sydney, for lack of serviceability. At the same time, property developers who have been struggling to meet off-the-plan sales targets to get finance approved through the big banks will now likely see new investors coming back to the market.

The RBA Minutes

The final kicker also came on the Tuesday, following the release of the RBA Minutes. Money markets had slowly but surely been pricing in rate cuts over the course of 2019. Governor Lowe by all accounts appeared to be hesitant to cut the cash rate from 1.5%, where it has sat for more than two years.

On Tuesday, Lowe was speaking following the release of the minutes of the last RBA Meeting, he made it clear that he would strongly ‘consider the case for an interest rate cut’.

The RBA’s primary role is to manage inflation. It sets a target band of 2-3% and adjusts the official cash rate accordingly. In the current climate where inflation is weak, it has started to become clear to many, including Governor Lowe, that inflation will underwhelm for some time, so the RBA started to focus on the state of employment, figuring that strong employment might be enough to lift the economy and CPI.

When the last set of employment figures were released, the red flag that the RBA quickly saw, was that the unemployment rate had jumped to 5.2% from 5.0%. They had previously guided that 5.0% was their line in the sand on employment.

From that point onwards, markets starting pricing in a rate cut with odds upward of 70% for that to occur at the next meeting of the RBA on June 4.

Later in the week, highly regarded Westpac economist, Bill Evans, came out and predicted that the RBA would not just cut once, but perhaps three times, taking the RBA cash rate to 0.75% down from 1.5%. Clearly, low interest rates and easier access to credit are a huge boost for housing markets.

The current conditions have already had a flow-on effect in areas like construction, where there is a significant drop in the number of new dwellings coming online compared to the same time two years ago.

It now appears that all the ducks are starting to line up for property prices to see a turnaround. The three key events this past week are all supportive of property prices and could very well mark a key turning point for the industry.

All eyes will now be on the June 4 meeting of the RBA when it is widely accepting that the cash rate will fall to at least 1.25%, potentially enticing investment dollars to flow back into housing.