Lower interest rates and improved property sentiment post-election appear to be boosting home prices in Australia’s two biggest cities, but falls are continuing elsewhere.
- National home prices fell 0.2pc, with capital cities down 0.1pc and regional markets down 0.4pc
- Sydney prices rose 0.1pc but are still down 14.9pc from its peak, Melbourne was up 0.2pc but is down 10.9pc from its peak
- Preliminary auction clearance rates were above 70pc in Sydney and Melbourne over the weekend
CoreLogic’s June home value index recorded a national fall of 0.2 per cent, with the capitals down 0.1 per cent and regional markets off 0.4 per cent.
However, the nation’s two biggest cities, which had been reporting the largest price falls until recently, bucked the trend with modest rises.
Sydney prices edged up 0.1 per cent last month and Melbourne rose 0.2 per cent, although both markets were down over the quarter and off 9.9 per cent and 9.2 per cent respectively over the past year.
However, the monthly gains were the first in almost two years in Sydney (since its market peak in July 2017) and 19 months in Melbourne (since its peak in November 2017).
CoreLogic’s head of research Tim Lawless said the return to modest price gains for Sydney and Melbourne was not surprising given recent improvements in their auction results.
“We have been seeing auction clearance rates consistently improving throughout 2019, and those results have run parallel with Sydney and Melbourne’s markets as well, where the rate of decline has been getting progressively smaller,” he told ABC News.
“Last weekend we did report that Sydney and Melbourne both returned a preliminary clearance rate above 70 per cent.”
While that preliminary clearance rate is likely to be revised down into the mid-60s, that is still a level usually associated with stable or rising prices.
Sydney and Melbourne ‘at, or near, the bottom’
AMP Capital chief economist Shane Oliver, who was one of the first mainstream analysts to predict double-digit home price falls for Sydney and Melbourne, said the tick-up in home prices was another sign that the downturn may be at its end.
“I think it likely is a sign that Sydney and Melbourne are at, or near, the bottom of their downturns,” he said.
“I think what’s happened here is that we’ve still got some negatives out there but the combination of the election result, which removed the threat to the capital gains tax discount and negative gearing, along with RBA rate cuts and some relaxation [in lending standards] by [bank regulator] APRA have resulted in a bit of a bounce in the markets.”
However, Dr Oliver warned prospective investors not to count on the type of home price gains seen the last time those cities ended a downturn in 2012 before going on a five-year run of massive increases.
“I don’t think we’re going to see prices take off dramatically from here,” he said.
“For one thing, household debt is a lot higher than it was last time house prices took off, banks are still very cautious in making loans and the real economy is still deteriorating and that’s going to result in some rise in unemployment, which I think will put a bit of a cap on house prices.
“As unemployment rises and there are these threats to global growth, that’s going to at least put a lid on prices going forward and you can’t rule out the resumption of price declines if unemployment rises more than we expect.”
Dr Oliver said an increase in the national unemployment rate past 6 per cent towards 7 per cent would likely result in more forced sales and renewed downward pressure on home prices.
Unemployment is currently at 5.2 per cent nationally, with the jobless rate in New South Wales and Victoria below 5 per cent.
Rate cuts should have ‘positive effect on housing demand’
Mr Lawless said the nascent stabilisation is only likely to receive more support when the Reserve Bank cuts interest rates again, possibly as soon as tomorrow.
“Lower mortgage rates will have a broader positive effect on housing demand across the country,” he said.
“Even though we aren’t expecting a rapid rebound in housing values, I think we probably will see some of the smaller capital cities starting to show a similar trend to what Sydney and Melbourne have shown and levelling out.”
However, Mr Lawless said the stronger economic conditions in Sydney and Melbourne were the main reason why their housing markets were now stabilising in response to lower interest rates and easier lending conditions.
“We’re still seeing more than 80 per cent of jobs growth in Australia centred in NSW and Victoria and these are the two states where unemployment is still below 5 per cent,” he explained.
“So I think we really do need to see economic conditions improving in those other markets outside of Sydney and Melbourne before we really start to see any material improvement in housing markets.”
The apparent stabilisation in Sydney has not assisted the regional housing markets near it, which seem to be experiencing delayed effects of the city’s housing bust.
“A big part of this weakness is being driven by the satellite cities around Sydney — so areas like Newcastle, Illawarra, Shoalhaven and the Southern Highlands are markets where we are seeing values falling, fairly in line with Sydney, although with a bit of a lag,” Mr Lawless observed.
He said many rural areas were also suffering due to an extended drought across much of eastern Australia.
“A lot of the regional drought-stricken areas are also heavily in decline, as we see those poor economic conditions flowing through into weak housing demand,” Mr Lawless said.
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