House Prices Down in Most Cities

May 13th, 2016
Property prices continue to fall in most Australian cities, with Melbourne and Hobart the only capitals to post March quarter gains. According to data from real estate marketing company Domain, the national median house price has fallen for two consecutive quarters for the first time in five years, with the average Aussie home now costing $719,024. With demand for home loans also down and foreign buyer interest declining, some economists have forecast cooling conditions over the next few months.

According to Domain, the March quarter saw a 0.5 percent decline in the national median house price, following on from a similar result in December. The last time Australia saw two consecutive quarterly declines in property value was in 2011 when the official cash rate (OCR) increased to 4.75 percent. With the OCR now sitting at just 2 percent, we may be experiencing a much more sustained slow-down this time around.

Hobart and Melbourne were the only two cities to record positive growth over the quarter at 4.3 percent and 1.2 percent respectively, with all other capitals recording declines. Darwin recorded the biggest drop in value at -4.9 percent, followed by Sydney at -1.5 percent, Canberra at -1.4 percent, Perth at -1.3 percent, Adelaide at -0.5 percent, and Brisbane at -0.05 percent. Price growth is still strong when viewed on an annual basis, however, with national prices up 6.2 percent over the last 12 months.

According to Domain's chief economist, Dr Andrew Wilson, weak growth is likely to remain for the rest of the year: "The outlook for house prices remains subdued with capital city growth, likely to continue to track at best just above the inflation rate for the remainder of 2016... The prospect of weaker house price growth, however, will be welcomed by prospective first home buyers still struggling to get into the market." ;

According to separate data from the Australian Bureau of Statistics, the number of new home loans is also dropping. The total value of all home loans dropped by 0.2 percent in March on a monthly basis, mostly due to a 1.2 percent decline in owner-occupier loan value. In contrast, investor loans rose in value over the month by 1.5 percent after recording 3.1 percent growth in February, as investors continue to drive demand in otherwise slow conditions.

While investor loans continue to heat the market across Australia, a reduction in foreign buyers is having the opposite impact on house prices. According to a recent study from the National Australia Bank, the level of foreign buyers is at a two-year low at just under 12 percent of the newly built market. While foreign buyers bought up more than 20 percent of newly constructed homes in Queensland, falling foreign interest was recorded in New South Wales, Victoria, and Western Australia.

According to ANZ, tougher lending standards and a slow-down in foreign investment are likely to ease conditions despite increasing demand from local investors: [While] "The impact of last year's macroprudential regulation, which raised interest rates and tightened borrowing conditions for investors, appears to be well in the past... We retain our view that the housing market will remain more subdued in comparison to last year's peak."

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