MARKET SLOWS, BUT INNER WEST HOUSE PRICES ON THE UP

A constantly fluctuating market is making it hard for analysts to predict what might happen next, but the most recent Domain report shows Sydney house prices have taken their biggest hit since 2015, falling 2.6 per cent in the March quarter.

And while that might sound all doom and gloom for those looking to sell a property, the latest statistics also show that parts of Sydney, namely the inner West, are still performing well.

That said many economists are predicting another fall in sales soon.

“I think we’ll come off another five per cent this year and probably another five per cent next year and we may continue to fall in 2020 by about two per cent. We’ve got more downside ahead of us,” AMP Chief economist Doctor Shane Oliver said.

The biggest fall in house prices over the most recent quarter was in Sydney’s south where prices dropped by up to four per cent.

Several experts are citing stricter lending regulations, first home buyer incentives and a glut of apartments in the market as the main reason for the drop in prices.

“People who would normally have bought houses may be thinking there’s better value in units, buying something brand new, close to the city and usually on a good transport line,” Dr Oliver added.

Investors now also need to pay more to borrow money, meaning its not as attractive a proposition to invest in property as it once was and houses are staying on the market longer, giving buyers more bargaining power when it comes to sealing the deal.

According to the Australian Bureau of Statistics, the number of first-home buyer loans across NSW nearly doubled in the first two months of 2018 compared to the same period last year.

In some parts of Sydney, first-home buyers could also be propping up apartment prices with the help of stamp duty concessions.

“Given poor affordability generally, they would be more inclined to turn to the unit market than to the housing market for their first entry-level property,” Dr Oliver said.

But in Sydney’s Inner West things are looking brighter; with house prices increasing by 2.2 per cent. The reason for this could be that the inner West is now seen as one of the city’s property hotspots.

It continues to draw buyers to the area because of its vibrant neighbourhoods, desirable properties and central location.

Experts believe that rental incomes are also still strong in the inner west because people are looking to be close to the city and important lifestyle amenities such as train stations, restaurants, cafes, bars and other big drawcards such as the Sydney University and Royal Prince Alfred Hospital.

Prices remain strong in suburbs such as Newtown, Erskineville and Alexandria – and the next quarter will give more of an indication of whether this price increase is tenable going forward.

HOUSE VALUES HOLD FAST

Recent CoreLogic data shows that house prices are stable throughout most of Australia.

House prices in most capital cities remained steady overall according to the data, which showed that Adelaide continued to rise and grew 0.1 per cent, while Sydney, Brisbane and Perth all held steady. Melbourne on the other hand declined 0.2 per cent.

Property listings in all capital cities fell, apart from Perth and Canberra which rose by 1.3 per cent and 6.9 per cent respectively. Darwin showed the steepest decline in listings with 31 per cent, while Sydney and Adelaide were 10.6 per cent and 7.2 per cent.

The data also showed that houses are still more popular to buy than units and the median time on the market is also holding steady with Hobart and Canberra at 30 days and Melbourne at 31.

Overall it looks as though Sydney’s house prices will remain steady for the foreseeable future.  But its too soon to tell if the stabilisation is just a ‘phase’.

ANZ Bank told Business Insider recently “We think there is already evidence that the slowdown in house prices is stabilising,” David Plank, Head of Australian Economics at ANZ Bank said. “But base effects mean the annual house price figures will continue to slow for a while yet even if monthly prices are stabilizing.

“Importantly, the stabilisation of the monthly house price data in seasonally adjusted terms is consistent with the stabilisation in the auction clearance rate.”

Although many experts are predicting that the market has reached a turning point of sorts, there’s still way too much volatility in the market for it to have settled completely.

Watch this space…

LOWER MORTGAGE DEMAND DRIVING MARKET

Investor levels in NSW are still quite active in the Sydney market with current ABS housing finance data showing they comprise 51 per cent of new mortgage demand; well above the long run average of 37 per cent.

This is despite tougher serviceability criteria and mortgage rate premiums.

But news.com.au reported in March that the financial services Royal Commission could have catastrophic effects on home borrowers going forward.

It seems likely that sweeping changes will occur in the home loan industry off the back of the commission after lending practices and mortgage brokers have come under particular scrutiny.

CoreLogic also predicted recently that the Royal Commission along with stricter lending policies in place for investors will have big ramifications for the mortgage market in Sydney and Melbourne.

“Credit policies aren’t likely to be relaxed,” CoreLogic’s head of research Tim Lawless said. “Borrowers who could have borrowed money for housing finance six months ago will find it more challenging to do so now, especially if they want interest-only loans, or are buying for investment purposes.”

He also predicted that values will continue to fall slightly in Sydney and Melbourne, “where the strongest growth has been, and where investors have been most concentrated”.

That said, the share of investor mortgages across New South Wales has fallen from its peak of almost 65 per cent in 2015, and could possibly decline further in light of slow capital gains and lower rental yields in Sydney as well as credit restraints on investment and interest only mortgages.

In April this year CoreLogic found that dwelling values across the combined capitals recorded an annual decline — down 0.3 per cent — for the first time since November 2012.

The biggest contributors to this decline were Sydney and Melbourne, falling 0.4 per cent each.

Sydney's median dwelling value is now $875,816 — a figure which includes both houses and apartments. But the median house price remains well above $1 million.

It’s still too early to tell what affects less overall lending and fewer new mortgages will have on the current housing market.