New data points to further falls in Australian home prices ahead

Ezra Shaw/Getty Images
  • Growth in Australian housing credit is slowing, especially to investors. The pace of change is also getting faster.
  • In the past, this has signaled the likelihood of further declines in home prices.
  • ANZ Bank is forecasting that Australian home prices will fall both this year and next, led by declines of 15% to 20% in Sydney and Melbourne.
  • In December, Australian capital city home prices fell by the most since 1983. Based on the data received so far this month, similar declines are likely in January.
  • CoreLogic will released Australia’s January Home Value Index on Friday this week.

If the latest data on housing credit growth from the Reserve Bank of Australia (RBA) is any guide, get set for further declines in Australian home prices ahead.

In the year to December, the outstanding value of housing debt grew by 4.7%, the weakest level since July 2013. It had been growing as fast as 6.6% in the year to September 2017.

Not only is housing credit growth slowing, the pace of the deceleration is actually speeding up, something that does not bode well on the outlook for home prices.

This chart from ANZ explains why.

ANZ Bank

It’s the bank’s housing credit “impulse” — effectively measuring the change in the change in housing credit growth — overlaid against the monthly annualised change in Australian capital city home prices as measured by CoreLogic.

The impulse fell to fresh cyclical lows in December, something that Jack Chambers and David Plank, Economists at ANZ, says points to the likelihood of further price weakness ahead.

“The focus remains on the continued slowdown in housing credit, with investor credit growth low and owner-occupier credit slowing,” they say.

“The housing credit impulse declined further in December. This is consistent with our view that house prices will continue to decline through 2019.”

ANZ is forecasting that home prices will continue to fall into next year, led by peak to trough declines of between 15% to 20% in Sydney and Melbourne, Australia’s largest and most expensive capitals.

Median home prices in Sydney have already fallen in excess of 10% from the peak struck in 2017. Melbourne, having started its downturn later than Sydney, will also pass this threshold should recent trends be maintained.

In December last year, Australian capital city home prices fell by 1.3%, the largest one-month percentage decline since 1983.

Based on data received so far in January, a similar fall to December appears likely.

CoreLogic will release its Home Value Index for January on Friday, February 1.

The final report from Australia’s Banking and Financial Services Royal Commission, including recommendations on home loan lending practices, will be released to the public on Monday, February 4.

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