By Adrian Bishop
There are significant signs the Australian property sector is heading for a downturn, with prices in Sydney now falling.
And as the five-year Sydney property market boom falters, interest rates could fall, it is suggested.
The three-monthly downturn of 0.6% in Sydney is significant, says the latest report from data analyst CoreLogic, as it was previously leading the market with a 74% rise over the last five years and this is the first time in 17 months that Sydney prices have fallen.
The figures reflect the fact that since a peak in November 2016, capital gains have been losing momentum, with national home prices unchanged in October 2017 at $543,251.
While most regions are experiencing a slowing market, only three capital cities recorded a fall over the three months to October: Sydney, Perth (-0.7%) and Darwin (-4.4%).
CoreLogic head of research, Tim Lawless, says, “Seeing Sydney listed alongside Perth and Darwin, where dwelling values have been falling since 2014, is a significant turn of events.”
Separate research from the Credit Suisse investment bank suggests the Sydney market is suffering from having fewer Chinese investors, due to tougher market cooling measures in Australia and investment barriers at home.
"Over the past few months, the Sydney housing market has not only cooled down, but has arguably turned cold," according to research from Credit Suisse economics and equity teams.
As a result, the Reserve Bank may be forced to lower interest rates, as the pulling back of offshore investment was “a very big risk” to the economy and the housing market, it suggests.
"We believe that the RBA will need to cut rates further to deal with the housing market slowdown in train. Without a healthy housing market, the economy does not have other growth drivers to lean on."
AMP Capital chief economist, Dr Shane Oliver, says there is uncertainty around how far Australian property prices might fall, but it could be up to 10%. “The Sydney market has well and truly cooled.”
The CoreLogic figures show the first rolling quarterly fall in Sydney property values since May 2016, when the first round of macro-prudential changes occurred and mortgage rates starting to reduce in line with the first cut to the cash rate.
However, Sydney home values have still risen 74% since the growth cycle commenced in early 2012.
Melbourne’s housing market, has remained stronger than Sydney’s, with values up 0.5% in the last month and 1.9% in the quarter. This is boosted by Victoria’s record migration rate, which is creating unprecedented housing demand.
Strong jobs growth and more affordability than in Sydney are supporting the growth. Even so, values are now rising at their slowest quarterly pace since mid-2016.