Housing market ‘green shoots’ beginning to emerge

ANZ Research economists Felicity Emmett and Adelaide Timbrell have identified “green shoots” in the housing market, with property price falls beginning to “moderate” and buyer sentiment on the rise.

Drawing on the latest data from property research group CoreLogic, the analysts noted that they expect a further 5 per cent fall in national home values in 2019 – taking the cumulative peak-to-trough decline to 15 per cent – before stabilising in 2020.

“Price declines in Melbourne and Sydney are already starting to moderate, suggesting we are most likely past the worst of the housing downturn,” the ANZ Research economists stated.  

The analysts also referenced the latest consumer sentiment data form the Westpac-Melbourne Institute, which reported an uptick in sentiment regarding the “time to buy a dwelling”, which increased by 13.6 per cent from 101.1 index points in May 2018 to 114.9 in May 2019.  

“This likely reflects the improvement in affordability brought about by price declines,” the analysts added.

The rise in first home buyer (FHB) activity was also cited, with FHB market share increasing from 15.3 as at 31 March 2018 to 18 per cent in the month ending 31 March 2019, according to the latest data from the Australian Bureau of Statistics.

“Better deposit affordability as a result of falling prices, along with improvements in sentiment, is encouraging first home buyers to enter the market,” the analysts continued.

“The number of years needed to save for a deposit for a Sydney home (on median incomes and prices) has fallen from 10.6 to 9.2 and stamp duty concessions in New South Wales and Victoria have also encouraged first home buying.”

Further, the analysts claimed that while it is “taking longer on average” to sell homes, most households are “coping well with the downturn”.

“While household debt has reached 190 per cent of household disposable income across the economy, serviceability of mortgages is not a problem for most,” ANZ Research stated.

“There are some signs of increased stress on home owners moving from interest-only loans to principal and interest loans, and default rates for these borrowers have moved a little higher from a very low base in recent months.  

“However, there are no signs of forced selling, with the number of new listings continuing to fall.”

However, the ANZ Research analysts concluded by noting that while improving affordability would be an “important ingredient in turning around the current cycle”, the upturn would not be as pronounced as the fall that preceded it.

“If prices fall in line with ANZ Research’s expectations and the economy remains in good shape, demand and sentiment should turn around,” the analysts stated.

“We are unlikely, however, to see a V-shaped recovery.”

[Related: Housing market may have ‘moved through the worst’]