Australia Economics Flash Alert: All Eyes on Post New Year Housing Selling Season
Stock on market is building. Data from SQM Research through late last year show rising dwelling stock for sale, particularly in both Sydney and Melbourne, and this is reflected in ongoing falls in house prices in both cities at the end of last year (Figure 1). Sydney is now down 11% from its peak and Melbourne 7%.
New supply and low auction clearances adding to stock on market. Housing construction and approvals are still running at elevated levels while demand has softened across most categories of buyers, especially investors and foreign buyers. Construction sales are the lowest in over five years (Figure 2).
APRA’s removal of IO benchmark won’t materially change the near term outlook but is still helpful. Housing credit growth has been steady in recent months at an annualized pace of 4%-4½% and our bank analysts expect further slowing this year. The removal of the 30% cap on interest only loans may see banks compete more aggressively for these loans but within an overall tighter credit assessment environment. However, the move will be helpful in moderating the scale of IO loans that will have to be transitioned to principal and interest loans. This in turn will help ease the squeeze on household cashflows and support spending.
Upcoming selling season now a key focus. We are expecting further gradual declines in house prices this year with peak to trough falls in Sydney and Melbourne of 15%-20% and smaller falls elsewhere. The late summer-early autumn selling season gets underway next month and this will provide an early test of market conditions.
Labour market is key for manageable correction in the housing market. As long as unemployment does not rise materially we are of the view that the correction in the housing market will remain orderly as there need not be forced selling of properties that could precipitate much larger falls in house prices than expected and which could significantly dent growth prospects more broadly.
