Australian Home Prices Will Continue To Fall: Westpac
The time to sell and cash in big appears to be well and truly gone, but is the time to buy on its way?
What you need to know
- Westpac predicts an extended period of falling Australian home prices
- The prediction is largely shared by economists and analysts across the industry
- Inevitably the question of whether or not it's the time to buy is raised
Joining a growing list of analysts including AMP Capital, the Commonwealth Bank and Morgan Stanley, Westpac predicts recent declines in Australian capital city house prices will continue for some time to come.
Australian capital city home prices recorded their fifth consecutive monthly fall with a 0.2 percent decline in March, and the economic commentary remains rather gloomy for property owners.
In a weekly update released by the bank on Wednesday, predictions indicated house prices could fall "up to 10 percent over the course of the next two years", led by the Sydney and Melbourne markets.
How Did We Get Here After Such A Massive Boom?
Westpac attributed the decline to several factors including tighter lending standards, oversupply and a marked slowdown in sales to foreigners.
“[APRA’s] macroprudential policies are restricting interest only loans and tighter guidelines for all new loans are slowing house prices and credit growth,” the update said.
“In previous cycles the authorities have relied on raising interest rates to slow the highly cyclical housing market. This time, the same effect has been achieved by the regulator as banks have independently raised loan rates, foreign demand has slowed, and regulations have significantly squeezed the availability of credit.”
The bank said the impact of this process on house prices will continue for the "foreseeable future" as the supply of credit is expected to "tighten markedly".
The update also predicted the weakness in prices could hit the broader economy as household spending potentially slows.
“This will represent a considerable change in the ‘atmospherics’ around housing wealth and may weigh further on prospects for consumer spending,” it said.
Westpac's predictions follow scores of similar sentiments from economists and industry experts following the continuing decline of house prices, particularly in the investor hot-spots of Sydney and Melbourne.
Property expert Robert Klaric predicted the end of the property boom ahead of other market commentators, citing the borrowing capacity of investors as a major contributing factor.
"The banks have turned around and said 'hang on, we're not going to value these properties at the price that you want to buy them at, you'll need a bigger deposit." Klaric told ten daily.
"When the banks start to adjust their way of giving finance out, it affects everybody."
The recent Banking Royal Commission has further compounded fears of a possible 'credit crunch', as regulators are likely to respond with a further tightening of responsible lending laws.
All Doom And Gloom?
While the time to sell may have come and gone, Klaric believes there is reason for younger first home buyers -- for whom the property market specifically in Sydney has grown more and more illusive-- to be optimistic, saying the decline in prices has somewhat leveled the playing field.
"I think if I were a first home buyer I would certainly look at the end of this year, early next year as the perfect time to purchase," he said.
"All of a sudden if someone's buying something for $600,000, there should probably be a good $50,000 to $60,000 cheaper purchase by the end of this year."
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