Higher mortgage rates add to the headwinds for Australian home prices this spring

  • Australian home prices have been falling for 11 months, according to data from CoreLogic.
  • The group says recent out-of-cycle mortgage increases from major lenders could lead to even weaker market conditions.
  • Sales volumes are low and listing levels are higher than a year ago, adding additional headwinds for price.

Australia’s housing downturn is deepening as prices fall across most parts of the country.

According to data released by CoreLogic last week, prices fell in a majority of Australia’s capital cities, and in regional areas, during August.

Combined, prices fell by 0.3% across the country, the eleventh consecutive monthly decline in a row. Over the past year, prices nationally have fallen 2% in average weighted terms.

While the current downturn has been modest by historic standards — both in terms of duration and size — there’s no shortage of forecasters out there who think there’ll be further weakness ahead.

Some even think this downturn could end up being the largest and lengthiest in Australia’s modern history.

And that was before three of Australia’s four major banks — Westpac, ANZ and CBA — joined other smaller lenders in lifting variable mortgage rates over the past couple of weeks.

Coming at the start of Spring, traditionally the busiest season for housing market activity in Australia, Cameron Kusher, research analyst at CoreLogic, thinks the latest round of out-of-cycle mortgage increases could exacerbate the weakness seen so far in 2018.

“Higher mortgage rates have already driven a slowing of demand for investors over the past year,” Kusher says.

“Although the magnitude of the mortgage rate increases announced is fairly small — around 15 basis points by each lender — it is likely that the higher mortgage rates will impact on housing market sentiment.

“Furthermore it may end up further exacerbating the declines which are already occurring in Sydney, Melbourne, Perth and Darwin, and the slowing of value growth being experienced elsewhere.”

Especially at a time when the amount of property listings tend to increase.

According to data released by CoreLogic earlier this week, the number of homes listed for sale across Australia’s capital cities rose to 111,373 last week, an increase of 9% on same period a year earlier.

Much of the increase was concentrated in Sydney and Melbourne where listings rose 22.5% and 14% respectively to 27,521 and 31,870.

While new listings — defined as properties that have not been put up for sale within the past six months — has actually fallen over the past year, dipping 4.3% across the capitals, the build in total stock up for sale reflects that it is now taking longer for homes to sell.

According to analysis from Westpac Bank, sales volumes across the country now sit at lowest level in 28 years.

Based on the current pace of sales, and after seasonally adjusting the CoreLogic listings data, Westpac said it would take nearly five months to clear all outstanding stock for sale, above the historical average of four months.

Westpac found the increase was driven by a sharp lift in how long it was taking for the average apartment to sell, rather than for houses which sit around long-run averages.

“The implication is that sellers are pulling back, unwilling to test the thin market and not ‘forced’ by circumstance to do so,” said Matthew Hassan, Senior Economist at Westpac.

And that was before variable mortgage were increased by a number of major lenders.

Given the backdrop of falling prices, higher borrowing costs, and a likely increase in listings, those vendors banking on warmer weather to improve market conditions could well end up disappointed.