These two data points suggest it might be a rough 12 months for Sydney property prices

Photo: Sarah Kimmorley.

Westpac’s September consumer sentiment survey revealed a fall of 5.6% to 93.9 today. As Bill Evans highlighted that wasn’t an unexpected result given everything that’s been happening in markets.

But in large surveys like this, the real nuggets of economic information are often found in the sub-indices and answer some important questions outside the headlines.

The thing that stood out to me was not the reversal of last month’s big bounce, or even increased concern about losing your job. It’s the comment on New South Wales and Sydney property, which could have the largest macro-economic impact.

The overall Australian response to the “time to buy a dwelling” question fell 6.7% to a still healthy 127.3 – so optimists easily outweigh the pessimists – but when Westpac extracted the NSW and Sydney data it was a very different result.

Bill Evans said:

The New South Wales Index continues to underperform with a 14% fall this month to be 34% down on a year ago and 55% over the last two years. Within that Index the Sydney component is down by 46% over the last year and has reached its lowest level since the survey began in 1975.

That suggests that Sydney property prices will struggle to rally and may instead come under downward pressure as buyers exit the market – as Deutsche Bank suggested in its note on a potential exodus from Sydney.

In a note following the release of housing loan data this morning the ANZ highlights that even thought the increase in investor lending was a better than they had forecast “we expect the full impact of these changes is yet to fully flow through. APRA’s 10% growth ‘speed limit’ on investor housing credit growth suggests investor lending should grow only modestly over the second half of the year.”

They also say owner-occupiers will struggle to fill the gap left by investors and provide a chart which combines the answer to Westpac’s time-to-buy question for NSW respondents with owner-occupier loan growth.

That’s important because if the marginal player sets the price, and if investors struggle to get finance to be that marginal player, it falls to owner-occupiers. If the ANZ prediction holds true and owner-occupier demand falls heavily then the auction clearance rates so many real estate agents have bragged about in recent times could change dramatically, stock levels could rise, with longer time on the market, creating downward pressure on prices.

While the ANZ said that overall they see “slowing house prices growth in 2016”, last month they highlighted the relationship between Westpac’s time to buy and Sydney house prices.

Here’s the chart:

It might seem like a witches brew. But evidence is starting to stack up that if Sydney property prices grow at all in the next 12 months it will be an incredible result.

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