MoneySydney's housing market downturn could end up being the longest on record

01:41  07 november  2018
01:41  07 november  2018 Source:   theage.com.au

This chart shows how Australia's housing downturn is spreading across the country

This chart shows how Australia's housing downturn is spreading across the country Australia's housing downturn is spreading across the country with around 60% of homes now worth less than what they were a year ago, according to estimates from Westpac Bank. "The spread of weakness across price tiers and geographies has continued to widen," said Matthew Hassan, Senior Economist at Westpac. "Our estimates suggest just under 80% of all dwellings by share of dwelling stock have recorded price declines over the last six months with just under 60% recording annual price declines.

South Australians are the worst offenders, spending around 0 on aircon when there’s no one home, while New South Wales residents are spending the least on unnecessary aircon, with just extra. Sydney ' s housing market downturn could end up being the longest on record . Business Insider.

Sydney apartment owners will be the worst hit, with a price drop of 8.44 per cent predicted over the next 13 months. That’s ,906 cut from the average unit price, according to finder.com.au’s panel of 32 experts and Sydney ' s housing market downturn could end up being the longest on record .

Sydney's housing market downturn could end up being the longest on record © Dominic Lorrimer Sydney's property market is cooling, and more falls are expected. Sydney home prices have fallen 7.4 per cent over the past year, according to CoreLogic’s latest Home Value Index, the steepest annual percentage decline since February 1990.

As seen in the chart below posted on Twitter by Cameron Kusher, Research Analyst at CoreLogic, prices in Australia’s largest and most expensive housing market have now fallen 8.2 per cent from their cyclical peak 15 months ago, making this the fastest downturn in over three decades, at least in this point in the price cycle.

Many suspect that prices in Sydney will continue to fall for some time yet, potentially making this the largest downturn in Sydney since in modern history, surpassing the downturn in the early 1990s that coincided with Australia’s last recession in 1991.

As seen in the next chart below posted by Kusher on Twitter, in the past it’s taken several years for Sydney prices to return to prior cyclical peaks whenever values have fallen this far this fast.

Following the downturn in the early 1990s, it took five years for values to return to their prior nominal peak, even without taking into account inflation over this period.

So will history repeat on this occasion?

While no one truly knows the answer, given this downturn has largely been driven by tighter lending standards, not the sharp increase in interest rates often seen before prior downturns, there are grounds to think this cycle could be even longer than in the past.

Official interest rates from the Reserve Bank of Australia (RBA) already sit at the lowest level on record, and most in markets believe the next move will be higher rather than lower.

So in the absence of an unexpected reversal of mindset from the RBA, rather than lower interest rates helping to bring forward demand as seen in the past, higher interest rates could actually reduce demand.

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could end up being more severe than what it initially thought, meaning this downturn could end up being the longest in several generations. “We’ve long expected the value of home loans to drop by a cumulative 20%, which is the main driver of home prices, which consequently will likely fall 5% plus

“Although this downturn has already lasted longer than the 12-month average of the seven previous downturns since 1980, the 3% fall in prices is the smallest on record ,” he says. “But with the full effect of the tightening in credit criteria and recent hikes in mortgage rates yet to be felt, we suspect this

While the recent tightening in mortgage lending standards has now largely run its course, at least according to Australia’s banking regulator, APRA, it’s also unlikely that lending standards will be be relaxed given Australia’s already-high household debt to income ratio, removing another tailwind that helped property values in Sydney recover in the past.

There’s also an unprecedented supply of new housing being constructed in Sydney, especially apartments, adding to downside risks for prices from the supply side of the equation.

It all points to this downturn being extremely elongated compared to historic norms without a substantial pickup in household incomes, stronger population growth or additional incentives to bring forward buyer demand for Sydney housing.

None of those can be completely ruled out, but the odds at this point appear small given acute affordability constraints that still exist in many parts of Sydney, even with recent price declines.

Like Sydney, similar trends are also evident in Melbourne at present with prices having now fallen for 12 consecutive months.

Given these cities contain around 60 per cent of Australia’s total housing wealth, should values in Melbourne also take years to move back to prior cyclical peaks, that could see the national price downturn also become the largest in modern times, especially should it spillover into smaller markets that have been holding up better this year.

There's a growing glut of homes for sale in Sydney and Melbourne.
A glut of homes are already up for sale in Sydney and Melbourne, with listings increasing over 18% from 12 months ago. October and November are months that traditionally see a strong increase in new listings hit these markets. The number of auctions across Australia's capital cities will increase 30% this week compared to seven days earlier. A glut of homes are up for sale in Sydney and Melbourne, and it could be about to get even larger. According to data from CoreLogic, there were 29,709 homes listed for sale last week, up 18.1% on a year earlier.

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