Housing price growth ‘unlikely to be replicated’ soon

According to CoreLogic’s latest Property Pulse report, Australian home values increased by a total of 43.9 per cent since June 2008, with combined capital city price growth of 52.6 per cent, and 16.6 per cent growth across the country’s regional markets.

However, CoreLogic research analyst Cameron Kusher has said that the current downturn in housing market conditions would prevent the trend from replicating.

The property group’s Hedonic Home Value Index for the month of June reported a 0.8 of a percentage point year-on-year decline in national home values, driven by a 1.6 per cent fall in combined capital city dwelling prices.

“While the last 10 years is not predictive of the future, dwelling values are already falling in Sydney and Melbourne and regional markets are currently outperforming capital cities.

“With housing in a downturn in Sydney and Melbourne and affordability stretched, at this point it seems unlikely the returns of the past decade will be replicated in the next 10 years.”

Mr Kusher told Mortgage Business that there are a number of factors that could signal slower price growth of the next decade, including reduced access to credit.

“Obviously, affordability is very stretched in those markets. We’re still not getting a lot of wage growth and credit’s become a lot tighter,” the analyst said.

“The last 25 years have really been characterised by credit becoming much more freely available. It’s much more difficult to access [now].

“There’s also talk that if the Labor opposition comes in, they’ll make changes to negative gearing and the capital gains tax discount and that will impact on demand from the investor market.”

Mr Kusher also made reference to the impact that a cut in Australia’s migration intake could have on the housing market.

“They’re also increasing discussions about Australia’s rate of migration to the country,” the analyst continued.

“If changes are made to that and we start to slow migration, then that’s going to mean less demand for housing.”

The property analyst also told Mortgage Business that the fall in home values would have to persist in the longer term to help ease housing affordability pressures, particularly in Sydney and Melbourne.

“Prices are obviously falling at the moment, but in the scheme of how much they’ve grown over the past decade, the falls today are fairly minor,” Mr Kusher added.

“You need further falls or you need the market to really go nowhere in terms of growth for a number of years for any real semblance of affordability to return.”

When asked how much price cooling would need to occur before the government and regulators explore options to reverse the trend, Mr Kusher said: “Trying to read the tea leaves about what the Reserve Bank or the federal government would do is really difficult.

“[However], I would think that if you started seeing falls in excess of 10–15 per cent from their peak, and you started to see those falls picking up pace, then certainly I think that regulators and the government would start to get a little nervous and look at pulling back on some of the macro-prudential policies and look at ways to try and stimulate the housing market. But, who knows really.

“I think, ultimately, the challenge is that housing is the biggest asset class, and if it’s falling in value, then it’s going to have repercussions across the economy.

“People would be spending less, particularly in the retail sector, and it does have quite a big impact if property prices start falling.”

Taking the heat out of the market

Government, regulators and industry stakeholders have recently weighed in on the current housing market trend, with Treasurer Scott Morrison praising regulatory controls on investor and interest-only lending, claiming that they’ve helped take the “heat” of the housing market.

However, some, including ANZ economist David Plank, fear that prolonged weakness in the housing market could pose broader risks to economic stability.

CoreLogic’s Property Pulse report revealed that house prices rose by 46.9 per cent nationwide in the decade to June 2018, with combined capital city growth of 56.2 per cent and regional market growth of 20 per cent.

Unit values jumped by 34.2 per cent over the past 10 years, with combined capital city growth of 42 per cent, and comparatively modest combined regional growth of 0.4 of a percentage point.

The research also revealed that the highest growth regions recorded over the past decade were in NSW and Victoria, with Sydney’s South West topping the list for both house and unit price growth of 112.9 per cent and 98 per cent, respectively.

Conversely, the weakest house and unit price conditions recorded were in Western Australia’s Northern Outback, where house prices fell by 38.3 per cent and unit prices by 73.3 per cent.

Mr Kusher said: “Value growth in NSW and Vic has been substantially stronger than growth elsewhere. In fact, the regions of NSW (Riverina) and Vic (North West) that recorded the weakest conditions over the decade have seen value growth well in excess of the best-performing WA region (Perth North West).” 

[Related: Sydney and Melbourne dominate 10-year price growth list]