'The correction is nearing its end': HSBC says Australian home prices will bottom later this year

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  • Australia’s housing market downturn, already one of the largest on record in terms of price falls and duration, is likely to come to an end in the second half of this year, says HSBC.
  • The bank says “evidence of some stabilisation in the housing market is starting to accumulate”.
  • HSBC says there have been few signs of distressed sales with mortgage loan arrears and defaults are low.
  • Australia’s median home price has fallen 7.9% from September 2017. Capital city median values have fallen more than 10%.

Australia’s housing market downturn, already one of the largest on record in terms of price falls and duration, is likely to come to an end in the second half of this year, says Paul Bloxham, Chief Australia and New Zealand Economist at HSBC.

“We expect the housing market to stabilise by the second half of 2019,” Bloxham said in a note released on Wednesday.

“Our forecasts are that national housing prices will have a peak to trough decline of around 10 to 15%, so our central case is that the correction is nearing its end.”

Bloxham’s view, more optimistic that other Australian housing market commentators, is underpinned by recent housing-related data which has, at least compared to what was seen late last year and earlier this year, shown some tentative signs of bottoming out.

“Evidence of some stabilisation in the housing market is starting to accumulate,” Bloxham said.

“Auction clearance rates in Sydney and Melbourne are picking up, albeit from low levels, as are loan approvals, particularly for first home buyers.

“The pace of decline in housing prices has slowed recently and consumer sentiment surveys suggest that a rising share of households now see it as a ‘good time to buy a home’.”

Data released by CoreLogic earlier this month showed that while median home prices fell across all capital cities in April, except Canberra, the overall pace of nationwide falls slowed to 0.5%, continuing to moderate from the levels reported earlier in the year.

Much of deceleration in price falls has been in Sydney and Melbourne where median values slid by 0.7% and 0.6% during April, slower than the 1% plus declines seen in December 2018 and in January this year.

While the moderation may reflect seasonal patterns — typically prices are stronger in Autumn and Spring, but weaker in Winter and Summer — Westpac’s Australian economics team, like Bloxham, said recent trends are consistent with other Australian housing market indicators.

Matthew Hassan, Senior Economist at Westpac said the recent moderation in the downturn is “broadly consistent with the improved tone from auction markets and consumer sentiment”.

“While much of the initial moderation in monthly declines appeared to be due to seasonality, the April update shows a clearer shift over and above seasonal variations,” he said.

Westpac

Tim Lawless, Executive Research Director at CoreLogic, also shares the view that the worst of the downturn may now be over given recent data trends.

“We are seeing further evidence that the worst of the housing market conditions are now behind us,” he said earlier this month.

“Values are still broadly declining, however the pace of decline has moderated since December last year and there are some tentative signs that credit flows have improved, albeit from a low base.”

While recent housing data has improved — or looked less-bad depending on your personal view — it follows a period of weakness rarely seen in Australia’s property market before.

Even with the recent moderation in price falls, Australia’s median home price has still declined 7.9% from the cyclical peak seen in September 2017.

The slide in the capital cities has been even more acute with median values down more than 10%, largely reflecting declines of 15% and 11% respectively in Sydney and Melbourne, along with ongoing price weakness in the mining capitals, Perth and Darwin.

Given that prices have fallen quite a lot, and are still falling at this point despite tentative evidence of a modest improvement in market conditions, it’s little wonder why some are concerned this will drag on the Australian economy, especially given the slowdown in the economy last year coincided when home price declines were speeding up.

While he says the housing downturn has contributed to the slowdown in the economy in recent quarters, Bloxham isn’t overly concerned about the outlook, including the impact on household spending, the largest component of GDP at a little under 60%.

“The fall in housing prices has had some effect on the economy,” Bloxham said.

“As housing prices have fallen, turnover of dwellings has slowed and this has weighed on sales of motor vehicles and furniture, which are goods which often get sold when houses are exchanged. However, much of the rest of the consumer spend has been fairly well supported. Consumer sentiment is above average and has been so through most of the housing market correction.”

Despite plenty of indicators suggesting the downturn in prices will slow employment growth, Bloxham believes that, based on official data from the ABS, that it has had much of a net effect on employment growth.

And as long as that continues, Bloxham says that will help to keep housing arrears, and as a result price falls, contained.

“There have been few signs of distressed sales. Housing turnover has slowed, not risen. Mortgage loan arrears and defaults are low,” he said.

“Mortgage serviceability remains strong because interest rates are low and the jobs market has been improving. Employment growth is currently above average, the unemployment rate is at an eight-year low of 5% and job vacancies are at a record high as a proportion of the workforce.”

Bloxham also points out that in New South Wales and Victoria — where the largest housing price corrections have occurred in the recent cycle — unemployment rates are at the lowest levels since the mid-1970s.

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