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Australian Property Journal – House prices plunge and the worst is yet to come (August 1, 2018 by Staff Writers)

AUSTRALIAN house prices have taken historical tumbles over the past year, according to the latest Corelogic Hedonic Home Value Index, while analysts have warned “the worst is yet to come”.

The 1.6% drop came with a 0.6% month-on-month fall, the biggest since September 2011, and the rolling quarterly drop of 0.9% was the largest since January 2012.

Corelogic head of research, Tim Lawless, there are not any factors that may halt or reverse the housing markets trajectory of subtle declines over the second half of 2018.

“The availability of housing credit has been a significant factor contributing to this slowdown, however there are a variety of hurdles contributing to slower conditions,” he said.

“From a credit perspective, the latest credit aggregates from the Reserve Bank of Australia highlight that owner occupier lending has continued to grow at a relatively strong pace; up almost 8% over the twelve months to June.

“The same data highlights that the slowdown in credit growth is attributable almost entirely to less investment lending, where growth is tracking at a record low of 1.6% annually,” he added.

Melbourne prices were down by 0.9% over July and by 1.8% over the three months, the largest falls nationally over both periods, and fell 0.5% annually. They are now 2.9% below their November 2017 peak, while Sydney is has dropped 5.4% since its peak 12 months ago, and slipped 0.6% in July and 1.1% over the quarter.

Darwin returned the biggest annual fall, of 6.2%, although prices grew by 0.4% in July.

Perth, down by 0.8%, and Adelaide, by 0.1%, also fell in July, while Brisbane and (0.1%), Canberra (0.2%) were up, while Hobart slowed to a standstill, 11.5% above its prices one year ago.

Analysts Capital Economics said the acceleration in the housing downturn “should make the RBA and some other analysts sit up and take notice”.

“What’s more, the worst is yet to come. Our relatively bearish forecast the prices will gradually fall from peak to trough is starting to look a bit optimistic.

“The further decline in the number of home sales in March (the latest month of reliable data) to a seven-year low was larger than the fall in the number of new listings. In other words, demand is deteriorating at a faster rate than supply is improving. That suggests house prices in the eight capital cities will soon be falling by 5% a year.” Capital Economics said.

It warned that the slide had come before the full effects of the recent rises in mortgage rates by some of the smaller lenders and the tightening in credit criteria by all lenders have been felt.

“There is still a big risk that the Royal Commission investigation into the banks results in a further tightening in lending standards.”

AMP Capital senior economist Shane Oliver reaffirmed his expectations that Sydney and Melbourne would see a top-to-bottom fall in prices of around 15% spread out to 2020, and that given falls already recorded since last year implies another 10 to 12% downside.

“So we are only part way there yet.”

AMP Capital expects the RBA will leave rates on hold until 2020 at least.

Oliver said other capital cities are likely to perform better, having not had the same boom over the last five or six years.

Perth and Darwin are likely at or close to bottoming, while Adelaide, Brisbane and Canberra are likely to see moderate growth, and the Hobart’s strength is tipped to continue at a much cooler pace than seen over the last year.

Lawless said growth trends vary remarkably across the broad valuation segments of each housing market, highlighting the diversity of conditions.

Melbourne saw a crunching of values from top to bottom, with the top quartile has falling 4.1% over the past twelve months while values in the lower quartile grew 7.5%. Similarly, Sydney’s top quartile values were down 8.0% as the most affordable quarter slipped by just 1.8%.

The trend was isolated to the two major markets. Lawless said the differential in Sydney and Melbourne is attributable to a range of factors, but most importantly, the surge in first home buyers had supported demand and the lower end of the market, and the tightening of credit has led to reduced borrowing capacity for many borrowers.”

“The surge in first home buyer activity evident since stamp duty concessions were introduced across New South Wales and Victoria in July last year has propped up demand across the more affordable end of the housing market,” he said.

“The focus on high debt to income ratios will intuitively impact the Sydney and Melbourne housing markets more than other cities due to demonstrably high dwelling prices relative to household incomes.”

Capital city dwelling prices fell for the ninth month in a row, by 0.6%, and by 1.1% in the quarter, and are now 2.4% below values 12 months ago. Regional values also were down 0.4% in the month to be 1.6% higher than August 2017.

The average gross rental yield for regional areas is 4.9% compared to just 3.4% in the capital cities.

Australian Property Journal

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