Home-buyers, investors sit it out
The steep downturn in property prices has spooked home-buyers and investors, with new mortgages to both groups falling sharply.
Housing finance data released by the Australian Bureau of Statistics yesterday showed approvals for loans to owner-occupiers for the purchase of established dwellings dived by 9.7 per cent in the past two months.
Loans to investors, which have been sliding since the beginning of last year, are now down 27 per cent in the past 18 months.
While the Reserve Bank of Australia indicated yesterday it was relaxed about the softening housing market, property analysts said it was underestimating the speed at which conditions were deteriorating.
The RBA’s quarterly review of the economy commented that “established housing markets have continued to ease gradually, including in Sydney and Melbourne”.
Although its report included an extensive discussion of the risk that falling house prices may cause a fall in consumer spending, this is not its central forecast, which is for household spending to continue growing about 3 per cent a year.
“The recent pick-up in labour income growth has been a welcome development, and consumption growth is anticipated to remain relatively steady at current levels,” it said.
SQM Research director of property analysts Louis Christopher said the housing figures showed conditions were deteriorating, with no end in sight.
Mr Christopher said peak-totrough declines in the region of 20 per cent were possible.
“It is more than a gradual easing, with annual declines in Sydney of 7 per cent or perhaps more, and it is far from over,” he said.
CoreLogic research analyst Cameron Kusher said when investors started retreating from the market, there was a lift in purchases by owner-occupiers, however this was now waning.
With the decline in turnover, the stock of housing for sale was rising, giving buyers more choice with little urgency to decide.
“It is hard to see a reversal in dwelling value declines or a lift in sales activity any time soon,” Mr Kusher said.
The RBA’s quarterly review has upgraded forecasts for the Australian economy, although by less than foreshadowed by governor Philip Lowe following Tuesday’s bank board meeting.
Dr Lowe had commented: “The central scenario is for GDP growth to average around 3.5 per cent over (2018 and 2019), before slowing in 2020.”
However, yesterday’s review showed growth reaching 3.5 per cent this year but easing again to 3.25 per cent in 2019 and 2020.
The RBA expects unemployment to hold at 5 per cent until the end of 2019 before declining further to 4.75 per cent.
Market economists were split over whether these projections would be achieved.
CommSec chief economist Craig James described the RBA forecasts as “economic nirvana”, saying it was “hard to envisage a more beautiful set of numbers”.
However, Westpac chief econ- omist Bill Evans said housing construction and consumer spending were likely to weaken. “The view around consumption growth being sustained at 3 per cent looks courageous,” he said.
He said that view relied on declining household wealth having little effect on spending. With the savings rate already having fallen sharply, Mr Evans said he thought the impact of falling house prices on spending could be significant.
The RBA acknowledged that this was possible but said there was no evidence of it so far. “Consumption growth has been strongest in NSW and Victoria, where recent declines in housing prices have been the largest,” it said.