Sydney’s housing market downturn may be over
Sydney’s housing market has entered a downturn, a trend that many expect will continue in the years ahead.
According to CoreLogic, Sydney’s median home price fell 0.3 per cent in June, extending the slide over the past year to 4.5 per cent.
It was the largest decline over a calendar year in two decades.
With the tighter lending standards based on debt and income levels still filtering through the market, limiting the amount prospective buyers can borrow, there’s no shortage of forecasters out there predicting the downturn will last for some time yet, potentially seeing Sydney values fall by up to 15 per cent from the cyclical peak struck in 2017.
Recent auction clearance rates certainly back that view, sitting at levels that have coincided with ongoing price declines in the past.
However, while they, like so many other housing market indicators in recent months, remain weak, they haven’t deteriorated all that much since late last year, raising the prospect that the worst of Sydney’s housing market downturn may be over.
Phil Odonaghoe, Economist at Deutsche Bank, thinks it is.
“In year-ended terms, Sydney currently has the weakest dwelling price growth of any capital city. But auction clearance rates suggest the worst might now in fact have passed for Sydney,” Odonaghoe says, pointing to the chart below showing the relationship between auction clearance rates and annual movements in Sydney’s median price.
There’s clearly a reasonable relationship between the two once auction clearance rates are advanced by six months.
As such, Odonaghoe says the recent stabilisation points to the likelihood that the scale of monthly price declines will slow in the second half of the year.
“Recent auction clearance rates, running at a little under 50 per cent once adjusted for withdrawals, actually point to a very modest improvement in dwelling price growth over the coming six months, or more specifically, ‘less negative’ year-ended growth,” he says.
“The data does suggest that dwelling price growth in Sydney might be around as weak as is likely to be seen in the current cycle.”
While many predict Sydney values will continue to fall in the years ahead, in contrast to Odonaghoe’s view, the price downturn since the middle of last year has been orderly and modest to date, helped by firm labour market conditions, strong population growth and stamp duty concessions for first time buyers, something that has undoubtedly helped to support prices at the lower end of the market.
As some other analysts have also discussed, even with the prospect of even tighter mortgage standards, lenders are unlikely to implement measures so strict that it leads a deterioration in profitability and the prospect of an increase in bad debts.
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