Will property prices keep falling?

Ross Greenwood speaks to Cameron Kusher, Senior Research at Corelogic RP Data, as Australian house prices have fallen for the 11th month in a row, with Melbourne and Sydney leading the slump.

Introduction: Will property prices keep falling?

Ross Greenwood:  We’ll start with property prices as we should because clearly, now, they are falling and the fall is accelerating in many parts of Australia. Let’s take you to, I think we should take you to house prices. If we go to Sydney, house prices over the past year are now down 7.1%. In some parts of Sydney, they’re down close on 10% from their peaks 12 months ago. In Melbourne, house prices are down year to date 4%, but for the year, down by 2.7%. In Brisbane, over the past year, up by 0.9%. In Adelaide, up by 1%. In Perth, down 1.5%. Hobart prices over the past year up 11.3%, it is the aberration.

Let’s now go to the senior research director at CoreLogic, Cameron Kusher is online. Many thanks for your time, Cameron.

Interview with: Cameron Kusher, Senior Researcher, Corelogic RP Data

Cameron Kusher:  Thanks for having me, Ross.

Ross Greenwood:  Okay, let’s start with the property prices falling. Is there any indication right now in these major capital cities that property prices, housing prices have stopped their falls?

Cameron Kusher:  There’s no indication at all, I guess the best we can say is that the monthly rate is declining. Sydney has fired up a little bit from where it was earlier this year, but if we look at Melbourne, for example, the last couple of months have seen quite a large fall. Going values are down 0.6% and all this following a 0.9% fall in July. There’s no real sign that the market is any closer to its bottom and we’re expecting falls to continue for at least the rest of this year and probably going to next year.

Ross Greenwood:  What we know right now is that foreign buyers have largely departed Australia. They’ve been encouraged to leave by government policy. Government policy also has meant that lending to investors has become more restrictive from the banks. We also know that Westpac last week unilaterally increased its mortgage rates by 0.14%. Under those circumstances, do you believe that there is really any incentive for house prices to move higher in the very short term?

Cameron Kusher:  They could be in areas outside of Sydney and Melbourne, but certainly not in Sydney and Melbourne coming off the back of very strong growth in property prices over the last seven or eight years. You’ve got to stretch the affordability. As you said, there’s been a lot of changes around foreign buyers, but also investors and owner occupiers and people can’t borrow as much as they previously could. I think it’s those factors all combined meaning it’s pretty unlikely that we’re going to see some growth in Sydney or Melbourne any time soon.

Ross Greenwood:  You split out today as part of this research some of the best and worst performing suburbs both in the capital city regions plus also in regional areas, so we know the best performing area is Hobart. Over the past year up by 10.7%, we mentioned this. Brisbane’s west up by 4.4%. The Mornington Peninsula in Victoria, 3.2%, it was higher. Melbourne’s west up by 3.1%, but, of course, maybe it’s slowing a little as we speak. The worst performing areas; Ride in Sydney down 9.4%, Baulkham Hills in Sydney 9.3%, Sydney’s inner west down 8.9%, Sydney’s Sutherland area down by 8.7%, Blacktown 8.7% down, in the south-west down 8%, Parramatta down 7.4%.

The only other state in that top 10 was Melbourne’s inner east down by 6%. It would seem to me that some of these areas are relatively affluent, and it might be that affordable areas are holding up by first home buyers getting back into the market.

Cameron Kusher:  That’s exactly what we’re seeing. In both Sydney and Melbourne, we are starting to see some declines, not on an annual basis but over recent months across the more affordable segments of the market, but certainly, it is the higher valued housing areas where we are seeing the largest falls. That’s not something that’s unfamiliar when you go into a downturn. If we look back to 2008 during the financial crisis, it was the higher valued areas that saw the largest fall. Even again in 2011, 2012 it was generally the higher valued market where we saw the greater falls.

Really that’s because when the market turns, there’s a finite supply of people wanting to buy in that market and there’s a lot fewer buyers for that type of property when the market does climb.

Ross Greenwood:  Is there also some volatility in places such as Ride for example, where there’s been a lot of apartment development in this area? The council really opened it up for that multi-dwelling apartment even on existing residential blocks. That land prices jumped in the expectation that there would be a lot of development as that development has cooled. The land prices themselves have come off which has affected them more adversely than many other places.

Cameron Kusher:  100%. I don’t have the house rates unit figures in front of me, but I did have a look at them today. The fall four units are much larger and broad than I worked out but recorded quite a sizable decline. You’re absolutely right, when areas get upzoned and more apartment is coming online, land prices increase and obviously house prices are largely driven by the underlying land value. Now that the market has turned and there’s been a lot of development, there’s not the same level of demand for land there and that’s causing prices to fall down.

Ross Greenwood:  Really it’s fascinating, but what your message is right now is don’t expect these conditions to end any time soon especially while the banks are easing up. The big question I guessed is whether at some point if this starts to affect the economy, that the regulators and the government have to start to ease up on some of those restrictions to allow a little bit of interest back into the property markets.

Cameron Kusher:  I think that’s certainly a possibility. Everything coming out of the Reserve Bank at the moment says that they’re quite happy with an orderly slowdown in Sydney or Melbourne. That could change. We’ve got their statements following their interest rate decision tomorrow and we saw pretty bad retail trade numbers today as well. Maybe they’re getting a little bit nervous because they have to know whether or not this is such an orderly slowdown and the impact it’s having on the broader economy.

Ross Greenwood:  It’s going to be interesting to watch that. Cameron Kusher is the senior research director at CoreLogic RP Data. Cameron, as always, it’s great to have you on my program.

Cameron Kusher:  Thanks, Ross.

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