Negative housing growth expected in 2018

Following the release of CoreLogic’s December Hedonic Home Value Index, which revealed that national home values dropped by 0.3 per cent in December, Mr Lawless predicted that the slowdown trend will continue throughout 2018.

“In 2018, the housing market performance is likely to be significantly different relative to previous years,” the head researcher said.

“We’re likely to see lower to negative growth rates across previously strong markets, more cautious buyers and ongoing regulator vigilance of credit standards and investor activity.”

The research chief drew on trends following housing market downturns in previous years, and he noted that current market conditions are pointing to a similar outcome.

“Previous downturns have seen the annual number of sales fall by around 20–25 per cent from peak to trough. Considering the cyclical peak in transactional activity occurred over the 12 months ending August 2015, year-on-year transactional activity is already 13.2 per cent lower than the most recent peak,” Mr Lawless said.

The research expert has attributed slowed housing market growth to macro-prudential policy changes imposed by Australia’s regulators, and he expects further credit tightening spurred by a possible cash rate increase from the Reserve Bank of Australia (RBA).

“The trajectory of the housing market through 2017 has been similar to conditions in 2015/16 when the first round of macro-prudential measures announced by the [Australian Prudential Regulation Authority] impacted the availability of credit for investment purposes.

“Capital city dwelling values fell by 1.6 per cent between late 2015 and early 2016, with falls more substantial in Sydney where investment activity has been more concentrated.

“Regulations are likely to be keeping a close eye on credit trends, with particular focus on investment credit and interest only lending, and the next move in interest rates is more likely to be up not down.”

Despite continued credit tightening, Mr Lawless expects mortgage rates to remain relatively low, which he claims will create a “positive lending environment for those who are able to secure credit”.

Mr Lawless expects borrowers to service their “record high” household debts in 2018, warning that prospective borrowers will face further difficulties with securing a loan.

[Related: Regulators tipped to loosen lending restrictions in 2018]