Sydney and Melbourne house prices fall again as economists warn of further falls
CHRIS KOHLER JUN 19, 2018
Sydney and Melbourne property prices have recorded their worst result since 2012, Bureau of Statistics data shows, with Sydney posting its first annual price fall in six years.
Economists now expect Sydney and Melbourne property prices to fall about 10 per cent from mid-2017 highs before starting to recover, with regulatory changes and tighter lending conditions reshaping the housing and credit markets.
National residential property prices fell 0.7 per cent in the March quarter, according to ABS data released on Tuesday, with Sydney recording a 1.2 per cent fall – its third consecutive negative quarter taking the city to its first annual price fall since March 2012.
Melbourne prices fell 0.6 per cent, which marks the first quarterly price fall since September 2012.
ABS March qtr home prices -0.7%qoq/+2%yoy. Broadly in line with CoreLogic data which has fallen another 0.5% so far this quarter and in May is down 1.1%yoy. Weakness led by Syd (-1.2%qoq). Melb also falling (-0.6%qoq). Expect more falls ahead in S&M. Hobart booming (+4.3%qoq) pic.twitter.com/VfgnvcGCtD
— Shane Oliver (@ShaneOliverAMP) June 19, 2018
“Regulatory changes and tighter lending conditions have continued to affect investors, who are more active in the Sydney and Melbourne property markets,” ABS chief economist Bruce Hockman said on Tuesday.
“These cities have seen strong price growth over recent years, particularly in detached dwellings.”
Most capital cities saw declines in annual growth rates since September 2017, with the exception of Hobart, which has jumped 14.1 per cent in that time.
The mean price of Australian dwellings is now $687,700, according to the ABS data, and the total value of Australia’s 10 million residential dwellings decreased $22.5 billion to $6.9 trillion. Peak-to-trough falls of 10 per cent expected
Noting a tightening of bank lending standards, Macquarie economists Justin Fabo and Ric Deverell expect the modest rate of decline in national dwelling prices to “continue for some time”.
The economists anticipate Sydney prices to fall about another 6 per cent, taking the fall since mid-2017 to about 10 per cent.
“We note that Australia has had six previous episodes of declining housing prices since 1980, with the peak-to-trough range of 2½ per cent to 8 per cent,” Mr Fabo and Mr Deverell wrote to clients on Tuesday.
“Nearly all previous corrections occurred following interest rate rises, a drag unlikely to be repeated anytime soon in this cycle.”
ANZ economists, meanwhile, materially downgraded their house price outlook on Tuesday – now also expecting peak-to-trough falls of around 10 per cent to Sydney and Melbourne.
“We believe the current cycle is being driven by tightening credit availability, rather than rising interest rates which have shaped previous cycles,” ANZ senior economists Daniel Gradwell and Joanne Masters wrote.
“Investors in particular are finding it harder to access credit, given ongoing policy changes across the lenders.” Future credit tightening will be ‘modest’: RBA
“Regulators would be delighted with the orderly cooling of housing markets so far,” Mr Fabo and Mr Deverell wrote, noting Reserve Bank governor Philip Lowe’s view that a sustained period of flat house prices would be ideal.
The RBA board made mention of tightening credit conditions and the impact on property prices in the minutes of its June 5 board meeting, released on Tuesday, but said future tightening was expected to be “modest”.
RBA minutes: Bank drops “confidence” narrative after a month, also that the next move is up and that there’s no “strong case” for a near term adjustment to leave that it is “holding policy unchanged”, reads a touch dovish & kicks the rate hike can well down the road… #******pic.twitter.com/1E56jIKLS4
— Alex Joiner (@IFM_Economist) June 19, 2018
The central bank board said the easing demand for credit was “helpful”.
“An easing in the demand for credit, as well the Australian Prudential Regulation Authority’s supervisory measures and tighter credit standards, had been helpful in containing the build-up of risk on household balance sheets, although the level of household debt remained high,” the minutes read.
“While there might be some further tightening of lending standards in the period ahead, the average mortgage interest rate on outstanding loans had declined over the previous year.”
The Reserve Bank in June left the official cash rate on hold at 1.5 per cent for a 20th consecutive meeting.
