Uncertainty is the only certainty when it comes to the future of Sydney’s property market.
With the final report from the banking royal commission handed down last week and both a state and federal election looming, we asked five experts how they expect the Sydney market will fare over the rest of this year.
Ernst & Young Oceania chief economist Jo Masters
Weakening demand and market sentiment are the emerging themes for 2019, Ms Masters said.
“There are widespread expectations of further prices falls,” she said. “We’re starting to see weakness in the housing market broaden out, not from just Sydney and Melbourne geographically, but across segments.”
“There’s real weakness in owner-occupier finance and also in the first-home buyer segment.”
While first-home buyer demand may have been pushed forward by changes to stamp duty in 2017 and was also affected by tighter lending restrictions, Ms Masters said it reflected a pull-back in buyer sentiment.
“We know that first-home buyers were accessing credit throughout 2017 and 2018,” she said. “[But now] the segment seems to be falling, despite affordability improving.”
Ms Masters said the upcoming state and federal elections were only feeding into the market uncertainty and expected buyers — particularly first-home buyers who have higher loan-to-value ratios — would wait to see signs of a slow down in price falls.
She predicted we’re halfway through the market downturn, but noted unless price falls slowed soon, we could see a peak-to-trough fall of more than 20 per cent.
“Those forecast of 20 per cent peak-to-trough declines were predicated on starting to see signs of the slowdown in house prices falls, and we just haven’t seen that yet.”
BIS Oxford Economics managing director Robert Mellor
Hesitation from both buyers and sellers could continue until at least mid-year, according to Mr Mellor.
While “we’ve seen the worst of it” when it comes to tighter lending restrictions, Mr Mellor also expected a decline in buyer demand, particularly among first-home buyers who have been propping up loan volumes.
“First-home buyers don’t want to buy into the market if they there is another 10 per cent decline [possible],” he said.
While timing was less critical for upgraders and downgraders, buying and selling in the same market, Mr Mellor said many would be reluctant to make a move.
“We’re in for a fair degree of hesitation until people see price data start to show, not flattening prices, but at the very least [smaller price declines],” he added.
As for investors, Mr Mellor said it was possible some were sitting on their hands awaiting the outcome of the federal election and potential changes to negative gearing. But, he added, it was unlikely they would rush back if the current tax settings remained because there was little growth on the horizon.
He noted that, for the same reason, if negative gearing was scrapped by a Labor government, the impact shouldn’t be significant because investors had less market share than in previous years.
If the market — forecast to see a peak-to-trough fall of about 15 per cent — bottoms out late this year or early next year, it will be a slow recovery, with mediocre price growth expected for a couple of years, Mr Mellor said.
Commonwealth Bank senior economist Gareth Aird
While credit tightening should be “done and dusted”, home loan approvals — down almost 20 per cent in 2018 — are expected to remain weak, Mr Aird said.
“It’s not because of constraint on the supply of credit; it’s basically because demand for credit has come off in line with views that house prices have further to fall,” Mr Aird said.
He expects credit demand to remain soft for the next three to six months and said the sharper than expected fall in credit growth, and drop in market sentiment, were key factors behind revised forecasts released by Commonwealth Bank last week.
The forecast, released on Thursday, predicted Sydney’s prices would fall another 5 per cent this year — which would take them to 15 per cent below their June 2017 peak.
“There’s a self-fulfilling nature … the timing of lending standards occurred quite a while ago. It’s not that, in and of itself, now,” Mr Aird said.
“If households as a collective expect house prices to go down … they invariably will because buyers hold off buying or offer lower prices, and that’s in part how you can get a correction down, the same thing happens on the way up.”
As prices continue to fall, Mr Aird expected investors would make their way back to the market as yields would become more appealing.
“I’m sure there are some investors sitting on the sidelines, just waiting to see the result of the election [and potential changes to negative gearing].”
NAB chief economist Alan Oster
Sydney’s property market has been hurt by APRA’s crackdown, said NAB chief economist Alan Oster, and prices have further to fall.
“I don’t see tightening of credit coming out of the royal commission … but I do see more emphasis on expenses and [banks] may become a little more gun shy, in the sense of knowing people are watching them in case they make a loan that turns bad.”
Mr Oster said while banks were looking more carefully at expenses, customer expectations were also changing.
“Previously buyers thought I better get in or prices will keep going up, now they’re thinking they’re not sure if they should,” Mr Oster said.
While NAB has kept its price forecast at a 15 per cent peak-to-trough fall, it announced on Tuesday that it now expects the Reserve Bank to keep interest rates on hold well into the next decade.
The bank, which had previously believed the next move would be up, now believes the RBA could even be forced into cutting the rate from its record low of 1.5 per cent, within months.
“I don’t see it going up, [but] we do see a significant and growing chance that it might go down,” said Mr Oster. The revision comes as its latest monthly business survey shows a slump in confidence across the east coast.
Housing Industry Association principal economist Tim Reardon
Despite a record number of apartments set to be completed, there is little fear of an oversupply of dwellings and significant further price falls, said Housing Industry Association principal economist Tim Reardon said.
“While unemployment remains low … and population growth remains strong, the depths of this cycle will be relatively shallow,” Mr Reardon said.
Apartments will clear relatively quickly, Mr Reardon added, as developers were holding back until conditions improved – with apartment approvals data for the December quarter down more than 33 per cent year on year.
“The rate at which they slowed down at the end of 2018 was a surprise, but now that the credit squeeze has occurred, we expect approvals will continue with a relatively slower, slow down over the next two years.”
Mr Reardon expected both developer and investor activity to increase as the market stabilised, potentially by mid-year, but said the upcoming elections were adding to the market uncertainty. At a federal level there are potential changes to negative gearing on the cards meanwhile, at a state level, there were concerns regarding development sentiment, which was shaping up to be a key election issue.
This article was first published in www.domain.com. This is thelink to the original article: https://www.domain.com.au/news/what-now-for-sydneys-property-market-five-experts-give-their-predictions-800490/