Buyers wait for bargains as Australia's housing market hits long slide
Australia news Buyers wait for bargains as Australia's housing market hits long slide
Prices across Australia fall for 11th month in a row and while itâs bad news for investors, first home buyers are biding their time
Five years ago banks were âfalling over each otherâ to give out loans says the Sydney-based IT executive Karl Slice, who bought his first investment property 15 years ago. He currently has six properties in his portfolio across Sydney, Melbourne, and northern Queensland.
But after roughly six years of uninterrupted, breakneck growth, Australiaâs housing prices are falling, and the noises from the lenders have changed. The difference between now and five years ago, Sice says, is like âchalk and cheeseâ.
Sydney and Melbourne, the twin engines of Australiaâs house price boom, are finally spluttering â" thanks mostly to financial regulator Apraâs tightening of lending and the fallout from the banking royal commission.
Across Australia, prices have fallen for 11 months in a row. In Sydney, they are down 5.6% over the year, and in Melbourne, they are down 2% in the past three months â" the worst drop since Christmas 2011. It wasnât too long ago that prices surged 11% in one year nationally and 20% in Sydney.Australians told to expect 'longest and deepest' housing slump Read more
And while it may not be a crash, it seems set to be a long slide. This week, Capital Economics predicted the coming fall would be the âlongest and deepestâ housing slump in Australiaâs modern history.
But while it is bad news for Sice and his fellow investors, it is good news for hopefuls trying to buy their first home. Where once the market was driven upwards by buyersâ fear of missing out, now they can afford to wait and see.
Rhi, who lives in the Illawarra region of New South Wales, south of Sydney, works in construction. She says she plans on biding her time and âsnapping upâ her first home when the market hits rock bottom.
âWe are getting married in October and then weâve got our honeymoon. This time next year is when we were hoping to get our first house. But if it keeps falling then weâll hold off to see what happens.
Itâs not a credit crunch, itâs a credit squeezePete Wargent
âIâm hopeful. The b anking royal commission seems to be tightening rules, and people with interest-only loans canât refinance and potentially, that could compound on the baby boomers where they have to give up their investment properties. A lot of millennials donât want investment properties, we just want a place to live without a landlord.â
According to analysts, the fall in house prices is the direct result of new stricter lending standards introduced by the financial regulator Apra in March, and the work of the banking royal commission in exposing the banksâ lax lending standards.
Apra placed a cap on mortgage lenders, limiting the number of risky interest-only loans to only 30% of new mortgages. By April, the value of housing loans fell by 1.6% across the country. Banks were also ordered to make much more rigorous checks of borrowersâ income and expenses to make sure they could afford the loans.
Pete Wargent, a property analyst and coach, says the new rules have affec ted mostly investors and speculators, taking the sting out of the overheated market.
âItâs not a credit crunch, itâs a credit squeeze,â he says. âItâs mainly investors who are being affected, your average home buyer has seen a marginal impact on how much they can borrow.Mortgage hikes show the dancing is nearly over at Australia's credit party Read more
âA lot of investors took out interest-only loans in that period of 2014-15 and theyâre going to find that rolling that over to new interest-only loans will be harder than they think. Itâs been a gradual deflation and that was what was intended.â
Prices and clearance rates have dropped since then, with Augustâs national clearance rate barely above 50%. Shane Oliver, AMP Capitalâs chief economist, said that the Fomo (fear of missing out) that had driven investors into the booming market, was now turning to Fongo (fear of not getting out) as prices tumble.
Last mon th, data from Digital Finance Analytics revealed that Apraâs changes appeared to be biting as the number of people whose applications to refinance their home loan were rejected, surged 1,250% in less than a year. In July, 31,000 refinance applications were rejected, compared to only 2,300 in August last year.
On top of the new lending rules, Cameron Kushner, a senior analyst at CoreLogic, says the drop was also the natural consequence of a market that people couldnât afford.
âOnce it does hit bottom itâs going to be a slow recovery to those previous levels in Sydney and Melbourne,â he said. âMy biggest piece of advice is that the housing market is not where it was 12 months ago. It has changed very rapidly. There are fewer buyers and they canât borrow as much. You need to adjust your price expectations accordingly.â
âOpportunities for buyersâ
In Melbourne, prices peaked in November and have been falling ever since. For buyersâ advo cate Frank Valentic, itâs a good thing.
âOverall, the market has definitely shifted here,â he says. âWeâve had a sellersâ market for six years â¦ Itâs good that the market is now offering some opportunities for buyers to get better buying opportunities.â
But Valentic points to a âsegmentedâ market where price growth in the outer suburbs â" mostly homes worth up to $750,000 â" is âstill very solidâ.
âItâs been more the inner suburbs, your one-million-plus market, thatâs definitely seen a slowing effect,â he says.
That slowing effect is not just applied to house prices: a broad downturn in the market would also affect Australiaâs huge construction industry, with a knock-on effect on the countryâs economy.
While most of the losses are concentrated in Sydney and Melbourne, those two cities make up 40% of Australiaâs housing stock by number, and 60% of the housing market by value.
As a result, BIS Oxford Economics have predicted that new housing starts will fall by 23% by 2020, in what will be the biggest correction to the market since the global financial crisis.
Their associate director, Adrian Hart, told the ABC that construction could flip from being âa driver of strong growthâ to âa drag on the economyâ.
Wargent agrees, and predicts that the construction slump will be âa hard fallâ.
âThe share of construction as a percentage of the labor force is the highest itâs been in 100 years. It increased sharply through the early years of the mining boom, then we have seen a handoff to the housing construction boom.
âIt should be a hard fall. Itâs a well known dynamic that housing construction has a multiplier effect â" essentially of $3 per $1â" so the corollary of that is, if it goes into reverse it will have a contracting effect on the economy.â
This puts Rhi in an odd position, as someone whose job is tied to the housing indu stry, but who also wants a cheap first home.
But she is optimistic, both that there wonât be a big crash, and that she could diversify her job enough to not be affected.
âI might take a hit in the amount of work I get, but I think I will be able to survive something like what happened in 2008,â she says.Topics
- Australia news
- Australian economy
- Business (Australia)
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