Australian Housing Market Suffers Biggest Fall Since GFC

Forecast To Be Worst Performer In 2019

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Issues with the Australian housing market, which started off as a minor point of contention for the RBA at the beginning of last year, morphed into a frustratingly large obstacle to raising rates and has now evolved into a source of global focus.

Fitch: Australian Housing Market to Be Worst Performer Again In 2019

In a report released by ratings agency Fitch last week, Australia has been forecast to experience the biggest decline in house prices of the year. Fitch project house prices in the country to fall by around 5% this year, having already fallen 6.7% from their peak.

This decline would see Australia registering the worst performing housing market globally for a second consecutive year (rankings based on 24 countries measured by Fitch). The declines are seen as reflective of reduced investor demand for properties in the wake of increased regulatory restrictions on interest-only investment lending.

APRA Scraps Restrictions in Light of Housing Market Declines

In recognition of the impact that such increases in regulations have had on the housing market, the Australian Prudential Regulation Authority (APRA) removed the 30% restrictions on interest-only investment lending in December, which they declared had “served their purpose.”

Fitch: Housing Credit Growth to Fall Further

However, Fitch has affirmed its concerns over the upcoming Royal Banking Commission’s final recommendations due in February, which it feels could further reduce the availability of credit.

In the report, Fitch said that housing credit growth (referring to bank lending) would likely fall further to 3.5% this year, down from 5.1% registered in its last report in October. Loans in arrears by over 90 days have also been forecast to increase by 2020.

Fitch: Mortgage Delinquencies to Rise

Worryingly for the RBA, Fitch has also warned about the potential for a rise in mortgage delinquencies due to homes taking longer to sell. The household-debt-to-GDP ratio is currently at 121% in Australia which creates a major hurdle for the RBA in terms of normalizing monetary policy.

Any upward shift in rates would have severe knock-on effects for already overly indebted households. As such the RBA has consistently stated the need for wage growth to rise and household incomes to increase before it can begin to look at increasing rates.

However, the ratings agency does say in its report that it expects prices to stabilize by 2020 as a result of above-trend GDP, reduced spare capacity in the economy and high levels of net migration.

Property Analysts Cite Worst Housing Market Slump Since GFC

The report comes just a week after data released by property analysts CoreLogic, which showed that Australia has now suffered its largest housing market slump since the global financial crisis.

The data shows that the worst declines were in Sydney and Melbourne which are now down 8.9% and 7%, respectively, from their peaks. House prices were seen lower in half of Australia’s capital cities with Perth and Darwin also recording 4.7% and 1.5% declines, respectively.

Government Out of Ammo

Commenting on the state of the housing market, Tim Lawless, head of research for CoreLogic, told reporters the reason why the current slump is worse than anything seen since the GFC is due to the fact that the government is out of ammo when it comes to tackling the situation.

Lawless told ABC News:

“We started to see interest rates coming down back in 2008, and a lot of stimulus came into the market in the form of the first home owner grant boost, cash handouts, infrastructure stimulus, and so forth… I don’t think we’re going to see a lifeline thrown to the market place this time in that form.”

RBA No Room to Manoeuvre

With the RBA currently keeping interest rates unchanged at all-time lows of 1.5% for a record 28 consecutive months, there is very little scope for further stimulus to help boost the housing market.

Lawless adds:

“In addition, we’re heading towards a federal election where we could see some taxation policies being changed, which could have a further negative effect on the market.”

Lawless is referring to the promises made by the Labor party to scrap negative gearing tax relief for new investors looking to buy existing properties if it wins the election.

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