PLUMMETING confidence among property professionals in the cooling Sydney and Melbourne residential markets has prompted the National Australia Bank to downgrade its house prices yet again this year.
Meanwhile, stricter lending conditions have forced foreign investor purchases to their lowest market share in seven years, and owner occupiers have increased their presence.
In the NAB Residential Property Survey for the September quarter showed sentiment had tumbled to a seven-year low, dropping sharply for the second straight quarter to -9 (according to NAB’s index, a reading of zero is neutral). This was largely due to falls in New South Wales and Victoria, cancelling out gains seen in Queensland – the only state to report a positive result.
NAB is now expecting Sydney house prices to fall by 5.7% in Sydney over 2018, and by 5.9% in Melbourne, having previously expected declines of 3.7% and 2.3%. Prices across capital cities are now forecast to tumble by 3.7% this year and 1.0% next year, downgraded from falls of 1.8% and 0.1%.
“The orderly correction in house prices will continue over the next 18-24 months with Sydney falling around 10% peak to trough and Melbourne 8%,” NAB’s chief economist Alan Oster said.
“This reflects a bigger fall than previously expected but would still leave house prices well up on 2012 levels.”
Weakness in dwelling prices will be driven by Sydney and Melbourne through 2019, particularly in the apartment market, and Oster said it is “likely” Brisbane and Perth would also contribute.
First home buyers continue to be key players housing markets, although their market share fell over the quarter, with owner occupiers picking up the slack – reaching a three-year high of 43.2% – as tougher restrictions on lending saw the number of local investors in the market fall.
Property professionals believe accessing credit is impacting housing markets, with the level of concern over interest rates now also rising.
The share of total sales to foreign investors has fallen to a seven-year low in new markets, from 9.6% to 8.1%, well below the 16.8% peak four years ago, and to a survey low 4.1% in established markets.
NAB’s revised outlook is closer to CBA’s recent forecast for further falls in 2019, for peak to trough declines of 10% in Sydney and a little less in Melbourne, at circa 8.8%. Nationally, ANZ’s latest house prices forecast has a fall around 4% in 2018 and 2% in 2019, before steadying through 2020. Capital Economics reaffirmed a bearish outlook for the market, while UBS has also forecast an extended decline.
According to CoreLogic data released this month, house prices have fallen by 2.7% one year on from the national market’s peak. Values were down across the country by 0.5% over September, marking 12 months of consecutive falls, while the seasonally adjusted fall of 0.9% was the largest since the global financial crisis.
Sydney values have dropped 6.1% over the past twelve months, and by 7.1% since the July 2017 peak. Melbourne values are 3.4% lower than one year ago, and 4.9% since its top in November.
NAB expects Sydney house prices to take a further fall of 1.6% next year before a small uptick in 2020, while they will fall 2.2% in Melbourne next year and then another 0.6%.
Sydney unit prices are tipped to drop by 3.6% this year and 5.5% next year, before a more modest 0.9% drop in 2020. Melbourne units are tipped to drop by 2.7% in 2018 before a 3.4% decline next year, tapering off to 1.0% in 2020.
“Overall, we see this as a healthy correction which will help offset some of the risk in the household sector against a backdrop of a relatively healthy economy and labour market,” Oster said.
NAB’s central scenario does not include a credit crunch event leading to “disorderly” falls in house prices.
Perth’s market will improve from a loss of 2.4% to just 0.2% next year, and then stability in 2020.
Brisbane’s house prices will fall from growth of 3.1% last year to 0.2% in 2018, and remain steady over the next two years, while Adelaide will come in from 3.3% to 0.9% before 1.7% growth in each of 2019 and 2020.
Similarly, Hobart’s nation-leading growth in 2017 of 12.9% will be essentially halved to 6.4% this year and then sit at 1.8% next year and the following year.
Unit markets will follow similar paths in Hobart (down from 5.9% growth this year to 1.2% over 2019 and 2020) and Adelaide (1.2%, 0.5%, 0.5%). Brisbane falls will be more pronounced in 2019 at 4.5% before and then come back in to 2.2%, while Perth’s 6.9% drop off this year will moderate to 2.3% and then 0.8%.
The outlook for rents has held up despite some softening, but house prices dropping off faster than rents will lead to beefier yields.
Australian Property Journal