- ANZ Bank is forecasting that Australian home prices will fall 4% this year and 2% next.
- ANZ’s housing credit impulse tends to lead annual movements in Australian home prices. Right now, the former appears to be stabilising, pointing to a moderation in price declines in the months ahead.
- Sydney home prices have fallen 6.1% over the past 12 months, and by a smaller 2.9% in Melbourne.
ANZ Bank is forecasting that Australian home prices will continue to fall next year, albeit at a slower pace than what’s been seen in 2018.
Based on private sector credit figures released by the Reserve Bank of Australia (RBA) for August, it looks like that view may well come to fruition.
Total outstanding housing credit grew by 0.4%, unchanged from the level seen in July, with owner-occupier and investor credit expanding at 0.5% and 0.1% respectively.
“Growth in housing credit was broadly steady for both the investor and owner-occupier subcategories,” ANZ says.
“Importantly, this was sufficient to see an improvement in the housing credit impulse, which historically leads changes in house prices.”
ANZ’s housing credit impulse — measuring the change in the change in housing credit growth — is shown in the chart below, overlaid against annual movements in Australian home prices.
While not a perfect by any stretch, there’s still a reasonable relationship between the two measures with movements in the credit impulse often leading home prices.
“While only a single data point, taken with the improvement in our Housing Search Index, there are signs that the downward momentum in house prices will slow in coming months,” ANZ says.
The bank is forecasting that Australian home prices will fall 4% this year and 2% next, driven by tighter lending standards and, eventually, higher official interest rates from the Reserve Bank of Australia.
Continuing the pattern already been seen this year, it expects the national decline will be led by Sydney and Melbourne, seeing values in both cities fall 10% from their cyclical peaks.
“We expect Sydney to perform slightly worse than Melbourne, given the large additions to supply set to arrive in the northern city, at a time of somewhat softer population growth,” ANZ said.
According to data released by CoreLogic earlier this week, Sydney home prices have already fallen 6.1% over the past 12 months, and by a smaller 2.9% in Melbourne.
As for the risks to its forecasts, ANZ says it will watching auction clearance rates in Sydney and Melbourne for guidance.
“Recently, auction results have slipped slightly further in Sydney and Melbourne,” the bank said.
“While this, and price developments, are largely in line with our forecasts, further weakness would present some downside risk to our outlook.”
Last week, auction clearance rates across Australia’s capital cities stood at 52.4%, up marginally from 51.8% seven days earlier.
Melbourne’s clearance rate fell to 53.8%, down from 54.1%, while Sydney’s improved from 48.6% to 51.1%. Both remain at levels that have historically coincided with price declines in the past.
With a long weekend on the way for many Australian states and territories, alongside the AFL and NRL Grand Finals, auction market activity will slow sharply this weekend with only 846 properties scheduled to go under the hammer, according to CoreLogic, down from 2,404 last week.
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