Home-buy­ers, in­vestors sit it out

The Weekend Australian - - THE NATION - DAVID UREN AS­SO­CIATE ED­I­TOR

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.

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