Property prices were expected to fall, but not quite this soon.
Conventional wisdom said a rise in official interest rates would be the trigger for housing prices to fall, because it would reduce the amount of money that buyers can borrow to spend at auction. So what changed?
Sydney and Melbourne home values have started to edge lower before any change to interest rates, as buyers reach the limits of what they can afford, banks reduce how much they will lend, and more homes are listed for sale.
The falls are modest so far but are a reversal of the strong run up in prices in the past year. Sydney home values fell 0.2 per cent in March after a 0.1 per cent fall in February, CoreLogic’s latest figures show, while Melbourne values fell 0.1 per cent in March and also fell 0.1 per cent in December.
On the supply side, the total volume of listings in the two cities is higher than a year ago, offering buyers more choice and reducing the frenzied bidding at auctions of last autumn that pushed prices up.
In terms of demand, the momentum lost is backed up by lending data. The value of new home loans fell 3.7 per cent in February with every buyer type taking out fewer mortgages, from owner-occupiers (-4.7 per cent) to first-home buyers (-9.7 per cent) and investors (-1.8 per cent), Australia Bureau of Statistics data shows.
Eventually, there is a limit to how much buyers can afford to pay.
Commonwealth Bank head of Australian economics Gareth Aird said the pricey major capitals have likely peaked, and values dropped due to buyers’ already stretched budgets.
“The evidence is pretty clear. Prices have peaked in the two biggest capital cities. Affordability has become stretched because prices have gone up so much. There is a limit to how high they can go,” he said.
“You can’t continue to grow indefinitely and that affordability picture has kicked in earlier in Sydney and Melbourne.”
He said lending had come off from an elevated level and values have fallen from “extraordinary” gains, both pointing to a cooling market regardless of what the Reserve Bank does.
The picture is different in other capital cities. While listings were higher in Sydney and Melbourne, there was less to choose from in Brisbane, Adelaide and regional Australia, which have all escaped price falls to see selling conditions remain strong, according to CoreLogic.
It might not last, experts warn. Banks have been reducing how much they will lend, which has affected expensive cities first but could flow through to more affordable areas later.
AMP Capital chief economist Shane Oliver noted a sharp rise in fixed mortgage rates, which make up a growing proportion of bank loan books, even though the Reserve Bank has not hiked.
Combined with the bank regulator’s change to the serviceability buffer last year – which forces lenders to check if borrowers could repay their loans if rates rose 3 percentage points, effectively cutting maximum loan sizes by 5 to 10 per cent – this means reduced borrowing power for buyers, he said.
“That’s filtering through lower prices. It’s going to impact Sydney and Melbourne first because they are the most expensive markets,” Dr Oliver said. “The reasons prices have come down before the RBA has done anything is that fixed rates have started to rise, and poor affordability.”
He said while the major capitals are leading the price cycle, other cities would be in a similar situation later in the year, except for Perth and Darwin.
“Perth and Darwin are below their last cyclical high in 2014, so their affordability is far more attractive.”
Dr Oliver also highlighted that property downturns in 2017 and 2019 occurred without the Reserve Bank increasing rates. Instead, they were due to macroprudential tightening that made it harder to get an interest-only loan, or to get a loan if a borrower had large or questionable expenses, which capped investors’ buying power in the market.
Westpac senior economist Matthew Hassan said the drop in values in Sydney and Melbourne highlighted a sensitive property market when it comes to lending conditions and vendor pricing, with more homes to choose from now among buyers.
“The wider housing market will move into a correction phase later this year,” Mr Hassan said.
“The correction will continue in 2023 and 2024,” he added, saying it would spread to other capital cities that become too expensive for buyers.
Article Source: www.brisbanetimes.com.au
from Queensland Property Investor https://ift.tt/8rCVIb4
via IFTTT
