Australian home prices could soon stabilise based on what you've been searching for on the web

Dean Mouhtaropoulos/Getty ImagesThe worst may soon be over. Maybe.
  • Australia’s median home price has fallen 2% over the past year, according to CoreLogic.
  • Web searches to buy Australian property are starting to increase, something that in the past has acted as a lead indicator for price movements.
  • ANZ Bank says recent trends suggest house prices are “set to stabilise towards the end of this year”.

Australian home prices have fallen for 11 months, leaving values down 2% over the past year, according to data from CoreLogic.

Many suspect recent trends will continue for some time yet, potentially leaving this downturn as the longest and largest in Australia’s modern history.

However, Australians have demonstrated time and time again that they love property. They love to own it, buy it and watch shows about it.

They also like to keep abreast about what’s happening in specific markets, particularly new listings.

Right now is no exception with ANZ Bank’s Housing Search Index, an indicator that uses data from Google Trends to aggregate internet searches related to house buying, starting to pick up from lows seen earlier in the year.

And, based on historic patterns, along with modest improvements in other housing indicators, it suggests prices may begin to stabilise towards the end of the year.

“The index suggests that while there is still more pain to come over the coming months, house prices are set to stabilise towards the end of this year,” says David Plank and Giulia Lavinia Specchia, members of ANZ’s Australian economics team.

Here’s a chart showing the bank’s Housing Search Index overlaid against quarterly movements in Australian home prices based of data provided by CoreLogic.

ANZ Bank

And here’s a similar chart, only looking at the index versus prices from an annualised perspective.

ANZ Bank

The second chart, in particular, has had a good track record of predicting annual movements in home prices over the past decade.

Plank and Specchia say it’s not only the Housing Search Index that’s pointing to stablisation in prices towards the back-end of the year

“A lift in housing-related internet searches is not the only better news on housing,” they say.

“The Sydney auction clearance rate lifted a touch in August, suggesting we may be past the worst.

“Consistent with this, there was a lift in housing finance in July, with the gain sufficient to turn the housing credit impulse.”

While all three indicators suggest that recent price declines may moderate in the months ahead, Plank and Specchia say its still too early to conclude that the worst is past for the housing correction, limiting the potential impact on the broader Australian economy.

“Melbourne’s auction clearance rate is still falling, for instance,” they say.

“We also have to see how the market reacts to the rate increase by Westpac.

“While we wouldn’t usually view an increase of 14 basis points as material, the fact it has happened against the backdrop of falling house prices may mean the impact is magnified.”

On top of those uncertainties, employment is now starting to slow, an outcome, if continued, that will likely limit any potential growth in household incomes.

Perhaps of more importance, given tougher lending standards towards high loan-to-income borrowers are unlikely to be relaxed, making it harder for potential buyers in Sydney and Melbourne, in particular, to meet vendor expectations based on current market valuations, it suggests the correction in these markets could have further to run yet.

Throw in the prospect of further out-of-cycle mortgage rate increases from other major lenders and it is, as Plank and Specchia suggest, still far too early to say the worst is over.

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