Pace of property price slump slows to 12-month low

Property research group CoreLogic’s latest Hedonic Home Value Index has reported that in May, national dwelling values fell 0.4 per cent, which represented the slowest rate of decline since May 2018.

According to CoreLogic’s head of research, Tim Lawless, the improvement was primarily driven by lower rates of decline across Sydney (0.5 per cent) and Melbourne (0.3 per cent), which spurred the initial downturn in the housing market.

However, despite the improvement, declines were reported across all capital cities except Adelaide, where dwelling values increased by 0.2 per cent.

Darwin recorded the sharpest fall in home prices over the month (1.6 per cent), followed by Perth (1 per cent).

Overall, combined capital city values fell 0.4 per cent, while combined regional values slipped by 0.2 per cent over the same period.

Mr Lawless said he expects the federal election outcome, which signalled the rejected of the Labor opposition’s proposed changes to negative gearing and the capital gains tax to help build on the improvement in sentiment across the housing market.

“The federal election outcome has removed the uncertainty surrounding taxation reform, which should see an improved level of confidence amongst home owners and prospective buyers, particularly investors,” he said.

“We now have some certainty around the initiatives announced in the federal budget, a consistent commission structure for mortgage brokers (who comprise around 60 per cent of mortgage originations), and the eventual stimulus for first home buyers in the form of a federal government deposit guarantee, which although limited to 10,000 participants with at least a 5 per cent deposit, will kick off in January next year.”

Mr Lawless also pointed to APRA’s proposed changes to mortgage serviceability guidelines, noting that the removal of the 7 per cent interest rate buffer would improve access to credit, and in turn, demand for housing.

“One of the factors contributing to less activity in the housing market has been the challenges involved with accessing credit,” he said.

“While there are a variety of other policies that will continue to keep a lid on housing credit, a more practical assessment of borrower servicing capacity is certainly a positive for housing market demand.”  

Further, the CoreLogic analyst said that expectations of a cut to the official cash rate from the Reserve Bank of Australia would also help stimulate demand in the sector.

“Lower interest rates may not provide the same level of stimulus as what we have seen in the past, due to tighter credit policies, but no doubt, lower rates will still provide some positive influence over the housing market,” he added.

However, Mr Lawless warned that while the outlook in the housing market is “looking more positive now than it was pre-federal election”, a “variety of headwinds are still at play”.

“Although interest rates and serviceability tests are set to reduce, lenders are continuing to scrutinize incomes and expenses much more intensely,” he added.

“Comprehensive credit reporting is providing lenders with greater visibility around borrower finances and overall debt levels, and progressively lenders are reducing their exposure to borrowers with high debt levels relative to their income.

“We should also keep in mind the reasons why interest rates are likely to move lower. Policymakers are becoming increasingly concerned about prospects for economic growth and stubbornly low inflation.

“The labour market is seeing some cracks emerge and global trade tensions remain high. If the economy continues to lose momentum, we could see further weakening in labour markets and a continuation of weak wages growth.”

Mr Lawless concluded: “No doubt, policymakers and regulators will be keeping a close eye on the housing market.

“If we see housing values surging higher on the back of increased stimulus measures, we may see macro-prudential or other policy levers being pulled in an effort to provide house price stability while at the same time supporting an improvement in economic activity.”

Moreover, S&P Global Ratings expects property prices to continue falling for the next six to 12 months, citing low wage growth, global economic uncertainties, and high household debt. .

“The recent re-election of the incumbent government, the potential relaxation of interest rate buffers when assessing loan serviceability, and a possible cut in the policy interest rate this week should stabilise sentiment, the availability of credit, and therefore house prices,” S&P stated.

 “However, we consider the impact of these positive developments uncertain and will wait for further evidence of stabilisation before concluding that related economic risks facing the Australian banks have eased.”

[Related: Building sector won’t feel market buzz until 2020]

Charbel Kadib is the news editor on the mortgages titles at Momentum Media.

Before joining the team in 2017, Charbel completed internships with public relations agency Fifty Acres, and the Department of Communications and the Arts.

You can email Charbel on: This email address is being protected from spambots. You need JavaScript enabled to view it.