Australia’s Housing Market in Significant Slowdown… Lasting Through 2021
By Terrance Roberts @ Real Estate Daily
April 19, 2018

Overview

Australia has been experiencing a drop in home prices throughout the country. Ever since the peak in the housing market in mid-2017, prices have been declining. The chief economist at Capital Economics predicts that the aggregate prices will fall by about 10% from the 2017 peak by the year 2021.

The major capital cities of Sydney and Melbourne are leading the slowdown and causing concern over the housing market in Australia. And although the population has increased in the country and the labor market is growing in strength, it is believed that the cost of credit will undermine any of these advances.

Key Takeaways

  • According to a chief economist, the home prices throughout capital cities in Australia are predicted to fall by about 10% by 2021.
  • Increasing interest rates will likely cause prices to decline more sharply in 2020 and 2021.
  • Even though Australia has seen population growth and a strengthening labor market, these factors are not enough to offset the rising cost of credit.

Excerpt

The medium-term outlook for Australian housing isn’t bright, according to Capital Economics chief economist Paul Dales.

Dales expects aggregate prices across Australia’s capital cities to fall by around 10% from their recent peak by 2021.

He cited reduced demand and the looming prospect of higher interest rates as the two main factors which will weigh on prices. With the Sydney and Melbourne markets leading a slowdown in house prices nationally, increasing attention is being turned to the outlook for Australian housing.

That’s perhaps not surprising given the central role housing plays in Australia’s economy, and the fact the market has yet to turn around since Sydney prices fell for the first time in 17 months last September.

“The recent fall in the demand for housing relative to the supply is consistent with house prices continuing to decline in the coming months,” Dales said. “While prices may only edge lower this year and next, higher interest rates will probably mean they fall more sharply in 2020 and 2021.”

Dales said house prices in Sydney and Melbourne are particularly vulnerable, given CE’s view that prices in those cities are around 25-50% overvalued. He also expects price falls in units to exceed those of detached dwellings.

 To get a gauge on the demand outlook, Dales said the sales-to-new-listings ratio was a more accurate barometer than auction clearance rates.

He noted that only 25-30% of home sales nationally are done by auction. And while the auction rate is higher in Sydney (35%) and Melbourne (45%), it still only comprises less than half the market. “In our opinion, the sales-to-new-listings ratio is the best single indicator of the health of housing,” Dales said.

Dales said the number of new listings is still relatively low by historical standards. Still, since early 2017 the number of new homes listed for sale each month has exceeded the number of homes sold.

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