Tuesday, 13 August 2019

Perth house prices enter ‘crash’ territory

The housing market is showing signs of life but in this city prices continue to fall — and depending on who you ask, have now officially “crashed”.

Frank Chung@franks_chung news.com.auAUGUST 1, 201911:01AM


Perth’s housing market has officially entered unofficial “crash” territory.

While most other capital cities stabilised in July, CoreLogic data released on Thursday show dwelling values in the WA capital fell another 0.5 per cent, bringing their total decline to 20.2 per cent from their 2014 peak.

Canberra and Adelaide were the only other capital cities to notch declines over the month, each of 0.3 per cent, while prices in Sydney, Melbourne and Brisbane rose 0.2 per cent — the first monthly increase for the Queensland capital for “quite a while” — Hobart 0.3 per cent and Darwin 0.4 per cent.

The median value in Sydney was $775,978, $619,443 in Melbourne, $484,998 in Brisbane, $427,009 in Adelaide, $441,275 in Perth, $451,191 in Hobart, $395,119 in Darwin and $586,535 in Canberra. The national median was $517,895.

“The fall over the month in Perth was a bit of a benchmark event,” said CoreLogic senior research analyst Cameron Kusher. “Prices have now fallen more than 20 per cent from their peak.”

Mr Kusher said it was expected given Perth’s downward trend but added, “I guess psychologically 20 per cent sounds like a lot more than the teens”, although he declined to call it a “crash”. “I don’t think so,” he said.

“Everyone has a different opinion as to what a crash is, whether it’s 20 per cent, 30 per cent, 40 per cent, but obviously 20 per cent is still significant and once that market recovers it will take some time to recover those losses.”

AMP Capital chief economist Dr Shane Oliver has previously described 20 per cent-plus falls as a “crash”, although there is no technical definition of the term.

Mr Kusher said elsewhere the housing market was showing signs of life. At a national level declines ground to a halt, with the slight gains in five of the eight capitals bringing the overall month-on-month change to 0 per cent.

Perth house prices are down 20 per cent since 2014. Picture: Tourism Western Australia/Fleur BaingerSource:

Growth regions 2009-2019. Source: HometrackSource:

Growth regions 2014-2019. Source: HometrackSource:Supplied

The national index is now down 8.3 per cent since peaking in 2017. “We’re certainly not seeing the national market perform as one,” he said. “We have been seeing a steady slowdown in the rate of decline nationally.”

Prices have been supported by the Coalition’s shock election victory, two interest rate cuts and a change by the prudential regulator to its serviceability floors, but Mr Kusher said weighing against that was the start of Comprehensive Credit Reporting last month.

Under CCR, banks will now have a fuller picture of a customer’s financial situation, including loans with other banks that they may have previously not declared.

“Even though getting a loan is a little bit easier than the last couple of years, it’s still more difficult than it has been historically,” said Mr Kusher. “The questions being asked of borrowers are still more stringent.”

Mr Kusher said that meant it was “going to be a pretty slow recovery”. “We don’t think it’s going to be a V-shaped recovery,” he said.

In a note on Thursday, Dr Oliver said while prices “may have bottomed it’s doubtful that annual price gains are on their way to 10 per cent or so as implied by the past relationship between (auction) clearances and prices and the current level of clearances”.

“The situation today is very different to 2011 when the RBA first started to cut rates in this interest rate cutting cycle which in turn helped unleash booming conditions in the NSW and Victorian economies and rapid debt growth made easy by somewhat lax bank lending standards against a backdrop of undersupplied property markets all of which fuelled rapid growth in Sydney and Melbourne property prices,” he said.

“By contrast today, household debt-to-income ratios are much higher, bank lending standards are much tighter such that a return to rapid growth in interest-only and investor loans is most unlikely, the supply of units has surged pushing Sydney’s rental vacancy rate well above normal levels and unemployment is likely to drift up as overall economic growth remains weak. So we don’t see a return to boom time conditions and expect constrained low single digit price gains through 2020.”

Meanwhile, Realestate.com.au chief economist Nerida Conisbee described the downturn as a “blip on the radar” over the long term and said buyers looking for growth should “go west”.

“What is particularly interesting is that for houses, the Parramatta region of Sydney has seen the largest price increases over the past decade. Over the past five years it has been Melbourne’s west,” Ms Conisbee said in a note.

“There are two things have pushed up prices in these areas. The first is rapid population growth and the second is not enough building. Sydney’s growth was particularly strong in the five years from June 2009, while Melbourne was less dominant.”

Ms Conisbee said that could be largely explained by low levels of construction in Sydney compared with Melbourne after the GFC. “Sydney’s economy took off but there were not enough homes. Melbourne at this time was better supplied,” she said.

“While historical trends are interesting, the next decade is of greater importance. My tip for top position is again Sydney. Like what happened post-GFC, development in Sydney is currently shutting down, plagued by over supply in pockets, as well as quality issues. Confidence is eroding in the development sector.”

She added, “Sydney won’t see enough development over the next five years and once the economy starts booming again, it will be caught out without enough housing and up will go prices.”


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