Things are not looking good for Sydney house prices. Photo / 123RF
Things are not looking good for Sydney house prices. Photo / 123RF
Sydney's housing downturn is 0.1 percentage point away from being the worst on record.
CoreLogic figures released on Monday showed Sydney house prices fell 1.4 per cent in November, double the national average, bringing the annual decline to 8.1 per cent.
Sydney's housing market is now down 9.5 per cent from its peak in July last year. CoreLogic believes the total peak-to-trough decline will be 15 per cent.
That means the downturn is on track to eclipse the previous record set during the last recession between 1989 and 1991 when prices fell 9.6 per cent, the worst since CoreLogic began collecting figures in 1980.
"The downwards pressure on national dwelling values is largely confined to Sydney and Melbourne which together, comprise approximately 55 per cent of the value of Australia's housing asset class," said CoreLogic head of research Tim Lawless.
"Additionally, housing affordability constraints are more pronounced in these markets and rental yields are substantially lower, indicating an imbalance between rental values and dwelling values.
"The ramp up in housing supply has been more pronounced in these markets against a backdrop of slowing demand, and Sydney and Melbourne have also been more affected by the reduction in foreign buying activity."
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Melbourne prices fell 1 per cent over the month and are now down 5.8 per cent from their peak in November last year. Nationally, dwelling values are down 4.2 per cent from their peak in October last year, back to levels last seen in December 2016.
Perth was the only other capital to see price falls at 0.7 per cent, while all other cities eked out minor gains over the month. Brisbane was up 0.1 per cent, Adelaide 0.1 per cent, Hobart 0.7 per cent, Darwin 0.7 per cent and Canberra 0.6 per cent.
The median value in each city at the end of November was:
• Sydney A$821,438 ($872,202) • Melbourne A$656,163 • Brisbane A$493,041 • Adelaide A$433,464 • Perth A$448,336 • Hobart A$451,039 • Darwin A$426,141 • Canberra A$596,141 • National A$535,481
The top end of the market is being hit the hardest.
In Sydney, the most expensive quarter has lost 9.3 per cent over the past year, compared with 5.7 per cent in the bottom quarter. In Melbourne, the top quarter has fallen 9.9 per cent while the bottom quarter has risen 1.7 per cent.
Auction clearance rates are hovering in the low 40 per cent range and threaten to dip into the 30s. SQM Research managing director Louis Christopher noted three previous times that has happened.
"That was in October/November 2008 during the GFC, May 2004 after the NSW vendor stamp duty was introduced and July 1989 when the cash rate hit 17 per cent," he told Property Observer.
Lawless said tighter investor finance conditions were fuelling declines in Sydney and Melbourne. RBA data showed the annual pace of credit growth slowed to 5.1 per cent in October, the slowest rate since 2013.
Meanwhile, owner-occupier credit growth is rising at the slowest annual rate since November 2015, possibly due to out-of-cycle interest rate rises by the major banks between September and October.
"Potentially investor sentiment is being weighed down by the potential changes to taxation policies related to housing should there be a change of government," Lawless said.
"A negative gearing rollback looking to exclude established dwellings could diminish demand across the resale market with less investment demand for properties with low rental yields.
"The halving of capital gains tax concessions would likely provide further disincentive to investment, on top of weak prospects for capital gains, premiums on investment mortgage rates, low rental yields and fewer depreciation benefits."
Lawless said this downturn was different to previous cycles. "Typically the catalyst for a turn in the housing market is a result of changes in interest rates or economic conditions," he said.
"This time around however, the market has been most affect by credit policies and availability of finance, despite very low mortgage rates and relatively strong economic conditions."
While headwinds from tighter credit conditions "will continue for the foreseeable future", strong GDP growth, low unemployment, strong population and wages growth "should help to support housing demand and offset a more material decline in dwelling values".
It comes as a survey of experts and economists by comparison website Finder.com.au found the majority support ANZ's prediction of 15-20 per cent falls in Sydney and Melbourne.
"ANZ's suggested 15 per cent drop would see A$145,500 and A$118,500 wiped off the average house price in Sydney and Melbourne respectively," said Finder.com.au insights manager Graham Cooke.
"A 20 per cent drop would see nearly A$200,000 disappear from the equity of Sydney homeowners," Cooke said. "If we do see these types of price drops in the market, recent home buyers who laid down a 20 per cent deposit could see themselves in negative equity by the end of the year."
Unsurprisingly, a survey of 1500 borrowers by ME Bank released on Monday showed those who purchased in the past three years were significantly more worried about falling prices.
Of people who purchased in the past 12 months, 70 per cent were worried about the value falling, 60 per cent were worried about losing money on a property, 57 per cent were worried about owing more money than it's worth and 46 per cent regret what they paid.
For people who purchased more than three years ago, those numbers were 49 per cent, 35 per cent, 27 per cent and 15 per cent respectively.
"There's little point worrying about what will happen to prices short-term if you're intending to live in a property long-term. Same goes for long-term investors," ME Bank head of home loans Andrew Bartolo said.
"The Australian property market has seen seven price declines-recover cycles in Sydney since 1984 and all have seen prices recover, most within four years. When it comes to financial stress banks take a long-term view, focusing on the strength of the economy and healthy employment rather than house prices.
"Two of the factors contributing to prices falls in Sydney and Melbourne are macro prudential requirements and tougher credit assessment rules, which have tightened the supply of credit. Economic growth remains strong and unemployment is low."
