National house prices have dropped, putting further pressure on Australian households already squeezed by record high debt and stagnant wage growth.
Sydney’s housing market suffered its biggest annual price fall in more than two decades, driving down national average house prices for the first time in six years.
Home values in Sydney fell by -4.5% in the year to 30 June 2018, a massive turnaround compared to the 16.4% growth experienced just a year earlier, according to Core Logic data. All Australian capital cities combined fell 1.6% and overall national home values were down -0.8%, the largest dip in prices since 2011-12.
Core Logic analyst Cameron Kusher says this financial year was one of only four over the past two decades in which capital city values have fallen.
“Unlike previous downturns, the slowing of value growth was not precipitated through movements in the cash rate,” Kusher says. “Increases to the cost of borrowing, particularly for investors, tighter credit conditions and a lack of real wage growth are some of the main drivers of weakening housing conditions.”
Fewer new mortgages but demand remains high
According to Deloitte's annual Mortgage Report the slowdown is likely to continue into the new financial year, with lending volumes dropping as much as 5%.
Deloitte financial services partner James Hickey says, “the strong lending growth of the 2013 to 2016 period was never going to be sustainable” and uncertainty around possible new rules following the Royal Commission into misconduct in banking will likely drive the number of new mortgages even lower.
But Deloitte Access Economics director Michael Thomas said Australia's residential market was still on solid ground.
“For both NSW and Victoria, growth in housing construction has slowed but remains at high levels,” Thomas says. “Underlying demand remains solid with strong population growth expected to continue into 2020 and jobs growth has also been strong, especially in Victoria.”
RBA keeping a close eye on prices
Alexandra Heath, head of economic analysis for the Reserve Bank of Australia (RBA), agrees that demand for housing remains strong and expects investment to remain at “high levels” over the next couple of years.
But the RBA is keeping a close eye on home prices due to the potential impact on household budgets.
“Dwelling investment growth has eased off [and] is not likely to contribute much to growth over the next couple of years,” Heath says. “Given that housing accounts for around 55% of total household assets, we are paying close attention to these developments.”
No single housing market
Heath says it’s “helpful to recognise that there isn't a single national housing market” and that there are distinct differences between states, as well as capital cities and regional areas.
Melbourne values rose just 1.0%, the smallest rise in the past six years and well down on the 13% increase in 2016-17.
Home values in Brisbane and Adelaide rose by 1.1% over the year, while those in Perth fell by -2.1% and Darwin experienced its biggest drop in five years at -7.7%.
Values in Hobart meanwhile have increased for five consecutive financial years including 12.7% in 2017-18 and 12.8% in 2016-17.
Combined regional values increased by 2.2% over the financial year with regional Victoria a standout with growth accelerating 4.8% in 2016-17 to 5.0% in 2017-18.