This article is from the Australian Property Journal archive
MOODY’S Analytics has warned Labor’s proposed negative gearing changes and a tighter lending environment could exacerbate the current housing downturn, and is expected heavy price falls across Melbourne and Sydney throughout 2019.
The March CoreLogic Hedonic Home Value Index shows home values have fallen for a year and a half nationally, with house values down 9% from their peak in late 2017, and apartment are down around 6%.
Sydney values are forecast to fall a further 9.3% in 2019 while apartment values will decline by 5.9%, with a slow recovery in 2020 in store for both markets. House values in Melbourne are expected to drop by 11.4% in 2019, with inner city locations hit hardest, and the apartment market by 5% in 2019 and a further 1.4% in 2020.
Nationally, Moody’s Analytics is tipping house prices to fall 7.7% this year before increases of 1.9% in 2020 and 4.4% in 2021, while apartment values will drop 4.3% before annual gains of 2% and 2.9%. The trough in home values will likely occur by the third quarter this year.
“This means that consumer sentiment is unlikely to decline materially, and overall consumption will hold up and prevent a rise in the unemployment rate,” Moody’s Analytics economist, Katrina Ell said.
“The downside risk is that the housing market declines sharply, more than expected, and the negative wealth effect becomes concerning across households, causing consumption to drop and the overall unemployment rate to rise. This could lead to a 25-basis point rate cut by the September quarter.”
Ell said an important driver of the slowdown in Australia’s housing market has been tighter credit availability, partly as a consequence of APRA tightening lending conditions, which has made it relatively more difficult to purchase a property, particularly for investors.
“The recently concluded Banking Royal Commission Into Misconduct in the Banking, Superannuation and Financial Services Industry could exacerbate already-tightened lending conditions, which could result in a further slowdown in credit availability, particularly in the investor portion of the market. If this occurs, it could exacerbate the forecast correction in the property market and delay or weaken the forecast improvement in 2020.”
Investor lending was down 29.1% year-on-year in February, according to data released by the Australian Bureau of Statistics yesterday, and by 13.9% for owner occupiers, despite respective monthly increases of 0.9% and 3.4%.
Ell said Labor’s proposed changes to negative gearing, should it win government at the upcoming federal election, also pose a potential downside risk.
“It is not confirmed what form this would take but could include abolishing negative gearing for new investors purchasing existing properties within Labor’s first year in office. If this policy were implemented within the first year of the opposition entering office, already-slowing conditions in the investor segment of the market would be exacerbated.
“As investor participation had already slowed, national home values would be expected to reach a slightly deeper trough and have a slower recovery, particularly in the markets where investor participation is higher than the national average, including Sydney, Melbourne and Brisbane.”
House prices in Sydney will take the biggest falls this year in Ryde, of 15.8%, followed by 14.4% in the inner south west, 11.6% in the eastern suburbs, 11.5% in the city and inner south, and 10.2% in the inner west. However, each of those locations will return improve considerably by 2020.
Growth hotspots in the coming years are the city and inner south, Blacktown, and Baulkham Hills and Hawkesbury, as well as the Central Coast, which offers strong growth prospects in apartment values also, as does the mid north coast and the Hunter Valley. Sydney’s outer south wests and Sutherland will see losses around 10% in their values in 2019.
All regions of Melbourne will see considerable price falls this year, headed by the inner east at 16.3%, the inner south at 14.2% and the outer east with 11.9%. The north east and the inner east offer strongest price growth in 2020 and 2021, as does the outer east and Mornington Peninsula. Geelong, at nearly 10% per annum, as well as Shepparton and Ballarat, also have bright value outlooks.
Across the apartment markets, the outer east will lose 9.1% from its values this year and the inner south 6.8%, while the south and east and west will continue shedding value in the coming years. Growth is expected in the inner east and north west.
A price correction is in store for Brisbane in 2019, with strength in East Brisbane offset by declines elsewhere, while the worst is likely over for the apartment market, which is expected to recover by 0.9% in 2019 ahead of 5.8% growth in 2020. Moreton Bay and Ipswich will see the strongest price growth over the next two years. House prices will grow across most regional Queensland centres from 2020.
Despite commodity prices stabilising, Moody’s Analytics expects Perth values to decline by 7.6% in 2019, followed by a small recovery in 2020 as the local economy improves on the back of population growth. Adelaide’s housing market will continue its stable run, with house values forecast to rise 1% in 2019 after a 1.9% gain in 2018.
Australian Property Journal
