A senior economist expects price falls in Sydney and Melbourne to continue after the latest CoreLogic figures found that capital city home values are gradually declining.
CoreLogic’s January combined Australian capital city dwelling prices fell by 0.5 per cent, which has pushed annual growth down to 3.2 per cent, down from its recent high of 11.4 per cent in May 2017.
The decline in prices was once again led by another 0.9 per cent fall in Sydney (with both houses and unit prices falling), which has lowered annual growth in prices to just 1.3 per cent. Melbourne prices are faring better than Sydney and were down by 0.2 per cent (8.0 per cent year-on-year).
“The slowdown in home price growth in Sydney and Melbourne is expected to continue over 2018. Auction clearance rates in the two capital cities are declining, housing affordability is pressuring households and the continuing flow of new homes (particularly, apartments) across the east coast of Australia is keeping dwelling prices under pressure,” AMP Capital senior economist Diana Mousina said.
“We expect prices in Sydney and Melbourne to fall by around 5–10 per cent this year. A property crash in unlikely in 2018 because interest rates will still remain low, and there is still a lot of support available for first home buyers, which cushions any price declines.”
The economist believes that slower dwelling price growth across Australia decreases the risk of an over-inflated housing market and the risk of a “bubble” — which would please the RBA.
However, Ms Mousina noted that the negative wealth effects to consumers from a slowing housing market also need to monitored.
“There is nothing in the latest updates on housing trends that changes our view on the RBA for this year — we see no rate hike until year-end,” the economist said.