June 2018

This is the second summary covering news and happenings in Sydney real estate, and more broadly.

Nobody say the B word

Despite another weakening month in the housing market, analysts are quick to point out that despite any losses felt, Sydney home prices:

  • are still up 66% on the last trough in 2012,
  • that the overall decline is still relatively mild and
  • is arguably a necessary adjustment to the market.

Having said that, the industry seems to be adopting the beginnings of a bunkering mentality, with experienced analysts advocating calm and offering tempering statistical wisdom. Nobody has come out and said the ‘B’ word yet, though the ABC has, based on Macquarie Bank analysis, asked the question.

State of the Industry

According to Core Logic, across the country, Australian housing values slipped 0.1% in May, taking the annual change of 0.4% into negative territory for the first time since Oct 2012. Core Logic pragmatically states this is a sign the housing downturn is becoming ‘more entrenched’. In comparison to the national average, over the last 8 months since the market peaked in September 2017, Sydney housing values have dropped by 1.1%.

As the Core Logic graph shows, in real terms this translates to an accumulative annual drop in Sydney house prices of around 5.9%, whilst unit prices have dropped by a much smaller 0.3% or not at all, depending on who you listen to. This difference between house and unit values is attributed to the lower market entry point of medium and high-density units, their more convenient positioning along transport spines, and their proximity to major business districts. In short, in the modern culture, why own a house when a unit has distinct advantages. The top end of the house market has suffered the most under this shift, whilst units and dwellings at the more affordable end of the spectrum are still seeing slight growth.

Source: Core Logic

Putting this drop in a broader context, it needs to be noted that the total advertised listings in Sydney have climbed by 20% on a year ago. Supply has climbed, and as a result, demand has dropped. This is somewhat confirmed with June’s reduction in auction clearance rates. For example, the first week of June clearance rates dropped to below 50% for the first time since 2012.

Home Loans & Mortgages

Ramifications from the Banking Royal Commission are beginning to be felt in the real estate industry. Core Logic discusses how inaccuracies in home loan applications could leave mortgage lenders exposed to risk during a housing downturn. This is a pro-active approach to the building of a solution discussion for banks and real estate to move through a tricky period, especially in Sydney and the capital cities.

ABC reports on the complexity of the housing market financial footing, with the concern of interest only loans rolling over into principal plus interest. According to the RBA, about $360 billion will roll over into interest plus principal in the next three years. The concern is that with a weakening market there could be a ‘fire-sale’ mentality arise, which could further pressure prices downward significantly.

Similarly, BIS Oxford Economics reports that the Sydney price slowdown may continue until at least 2021 with a further – if easing – decline over the next 12 months. The ABC cites ANZ figures estimating the drop may be as much as 10% from the 2017 peak to the forecast trough. This takes into account the tighter lending restrictions that came out of the Royal Commisions.

Bondi in the early morning