BIS Oxford Economics is one of the leading groups in Australian real estate forecasting.

Today’s press carries news of a big turnaround in BIS’s forecasts for the Melbourne apartment market. If they are right, this will be a positive for the medium term outlook on the Aussie Dollar; Australian bank stocks and a raft of companies whose business is related to housing construction

BIS, along with others, has for some time been forecasting a looming glut in the Melbourne apartment market. They had projected an excess of 20,000 apartments in Victoria by 2018, mostly centred in Melbourne. They’ve now revised this to a much more manageable 2000. The reason for the turnaround is that the Victorian population has grown by 109,000 more than previously expected

If BIS’s forecast is correct, it will have 2 implications

  • There will be far less risk of a severe downturn in housing prices
  • The downturn in residential construction will be shallower and end sooner than many had forecast

Both these factors could ultimately change forecasts for the timing and extent of Australian interest rate increases, helping provide a base for the Aussie Dollar.

Building approvals data has been trending lower for some time as developers react to the potential for an apartment glut. National apartment approvals were down 29.5% in the year to July. This means that housing construction is set to be a drag on GDP growth in 2018.

 There still will be a housing construction downturn. Housing starts are starting from a very high base and there is already an apartment over supply in Brisbane. However if BIS is correct, it won’t be as severe as forecast. The resulting drag on economic growth may be less than many anticipate. This will water down one of the bears’ core concerns about both Australian banks and the Aussie Dollar.