- Home prices across Australia’s capital cities fell 0.3% in April, dragged lower by declines of 0.4% in Sydney and Melbourne.
- Shane Oliver, Chief Economist at AMP Capital, says prices in Sydney and Melbourne will fall by 5% in each of the next two years.
- In 2008 and 2011, the RBA cut interest rates when home prices were falling this fast.
For the first time since late 2012, Australian capital city home prices are now lower than they were a year ago.
According to CoreLogic, prices across the capital cities fell 0.3% in average weighted terms last month, dragged lower by declines of 0.4% apiece in Sydney and Melbourne, masking flat to higher outcomes in most other parts of Australia.
Reflecting recent declines in Australia’s largest and most expensive property markets, it left prices in Australia’s capitals down 0.3% over the year.
The recent divergence across individual markets is in stark contrast to what’s been seen in recent years.
In the space of just six months, the housing market has been turned on its head. Rather than being the price leaders, Sydney and Melbourne are now the laggards, and by some margin.
Shane Oliver, Head of Investment Strategy and Chief Economist at AMP Capital, expects that trend will continue for some time yet.
“We expect prices in Sydney and Melbourne to fall another 5% this year, another 5% next year, and to still be falling in 2020,” he said following the release of the CoreLogic report.
“Last year’s APRA-driven tightening in lending standards for interest only borrowers is clearly continuing to impact and along with poor affordability, rising supply, falling price growth expectations and the end of FOMO [fear of missing out] are pushing prices down in cities which have seen strong gains over the last few years.
“The latest round of tightening bank lending standards around borrower’s income and expenses will add to this.”
However, as Sydney and Melbourne prices fall, he expects Australia’s smaller capitals to go in the other direction.
“Having not had the same boom over the last five or six years other capital cities are likely to perform better,” he says.
“Perth and Darwin look to have bottomed while Adelaide, Brisbane and Canberra are likely to see moderate growth and the boom in Hobart (is likely to continue for a while yet.
“Similarly, home prices in regional centres are likely to hold up better with continuing modest growth as generally speaking they haven’t had the same boom as Sydney and Melbourne and so offer much better value and much higher rental yields.”
Despite the expected divergence across individual markets over the next few years, given the sheer size of the Sydney and Melbourne housing markets — accounting for around 60% of Australia’s total housing wealth — Oliver says further weakness in these markets will likely see the RBA leave interest rates on hold for the foreseeable future.
“The continuing weakness in home prices in Sydney and Melbourne with more to go is consistent with our view that the RBA will leave rates on hold out to 2020,” he says.
“Home price weakness is now at levels where the RBA started cutting rates in 2008 and 2011.”
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