Money Industry professionals have turned cold on Australia's largest property markets

02:28  13 july  2018
02:28  13 july  2018 Source:

Home prices in Sydney and Melbourne are still falling

  Home prices in Sydney and Melbourne are still falling <p>Prices in Sydney, Melbourne <g class="gr_ gr_3 gr-alert gr_gramm gr_inline_cards gr_run_anim Punctuation only-ins replaceWithoutSep" data-gr-id="3" id="3">and</g> Perth all eased by 0.1%, while those in Brisbane and Adelaide were flat.</p>Australian home prices continued to fall in early July, dragged down yet again by declines in Sydney and Melbourne.

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a group of people standing outside of a building: Cold winter day in Melbourne, Australia.  © Provided by Getty Cold winter day in Melbourne, Australia.

    Sentiment among Australian property professionals weakened sharply in latest ANZ-Property Council of Australia (PCA) survey, pulling back from record highs in the prior quarter.

    The decline was also broad-based with sentiment only improving in Queensland and South Australia from three months earlier.

    Unsurprisingly, it was driven by souring sentiment towards the outlook for the housing market.

    "The fall in sentiment is entirely due to the residential segment," said David Plank, Head of Australian Economics at ANZ Bank.

    "In a sharp reversal from the stabilisation of previous quarters, the outlook for capital values in residential property has deteriorated markedly.

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    "Staffing levels, construction activity and the forward work schedule are all expected to ease in the residential space."

    In recent months, home prices nationally have been falling in average weighted terms, led by declines in Melbourne and Sydney, mirroring weak outcomes in auction clearance rates, new home sales and housing credit growth.

    The decline in industry sentiment also reflects the views conveyed in the latest Westpac-MI Australian consumer survey.

    Plank said expectations for home prices weakened substantially in the latest survey, a result in stark contrast to the views conveyed just one year ago.

    "The outlook for capital values has materially worsened," he said.

    "New South Wales and Victoria are leading this shift in sentiment, with a net 37% and 24% of respondents respectively expecting prices to fall over the next 12 months.

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    "This reflects a sharp turnaround from the net 20% who expected prices to rise this time last year."

    Like recent data and many analyst forecasts, all the weakness is concentrated in New South Wales and Victoria, masking stronger sentiment levels in Australia's smaller states and territories.

    a screenshot of a cell phone© Provided by Supplied

    "It is understandable that respondents expect New South Wales and Victoria to experience the sharpest declines, given that those housing markets have had the strongest growth in recent years," Plank said.

    "Households there are the most highly leveraged and therefore the most susceptible to tightening lending standards."

    Despite the pessimism in those markets, Plank said it was encouraging to see a stronger outlook in Queensland and Western Australia.

    "Queensland is experiencing accelerating population growth, which should support the housing sector, while Western Australia is close to the end of the downturn in mining investment," he said.

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    Australia as a whole is heavily reliant on primary industry and the main benefits of a FTA between the two countries were seen to be increased access to the large , but heavily subsidised and protected, American market by Australian producers.

    Investments in Coal, metal industry and Livestock have supported the industrial property market while the vibrant commercial sector forms the base for office property investment (Hendershott, 1994). Australia has one of the most stable economies in the world.

    However, while pockets of strength will remain, from a broader perspective, respondents were pessimistic about the outlook for residential construction in the latest survey.

    "The outlook for residential construction activity has also eased, reaching its lowest level in six years, albeit still in positive territory," Plank said.

    "If credit availability worsens -- as expected by survey respondents -- it is likely that building approvals will follow suit."

    As seen in this next chart, expectations about the ability to obtain finance has a more than reasonable relationship to annual changes in Australian building approvals.

    a close up of a map© Provided by Supplied

    And with overall expectations about the outlook for residential construction deteriorating in the latest survey, it also suggests that Australia's residential building boom -- currently the largest on record based on the number of homes already under construction -- could pull back sharply in the months ahead.

    a close up of a map© Provided by Supplied

    "We believe that building approvals are already moving past their peak," Plank says. "And we expect to see housing starts fall around 10% over the coming year."

    He says a sharp tightening in credit availability also raises the risk the decline may be steeper than ANZ currently expects, especially in the second half of 2019 and into 2020.

    "The tightening in credit availability and the associated weakening of the residential housing market do increase the economy’s vulnerability to additional shocks," Plank says.

    "This suggests that policy makers should be especially careful about adding to the downside risks.”

    According to the PCA, the most recent survey canvassed the views of over 900 property experts, including owners, developers, agents, managers, consultants and government officials.

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