Falls and green shoots in housing market

Falling house prices are drifting closer to the depths of the Global Financial Crisis (GFC) in 2008.

Over the three months to the end of last month prices fell 3.5% compared to the GFC’s 4.4% bottoming out in August 2008.

CoreLogic’s House Price Index (HPI) shows the national measure of property values fell a further 1.8% in August alone, twice the rate of that in July at 0.9%.

CoreLogic research head, Nick Goodall says restricted, more expensive credit continued to impact increasingly weary buyers with the property market downturn firmly entrenched and evident across the entire country.

“Consumer sentiment can be a key influence on the market and the already-smaller pool of would-be buyers are happy to bide their time in the falling market.”

Despite this a handful of commentators are now starting to signal the downturn “on the ground” may come to an end within the next six to nine months.

Goodall said while it’s likely there is still time to run on the downturn, there have been green shoots of optimism sprinkled through the mostly negative data flows.

However, CoreLogic senior property economist Kelvin Davidson says during the GFC prices dropped and then stayed flat for the next one to two  years, which suggests caution is needed about the 2023-24 outlook.

Goodall says the borrowing environment remains tough though, and along with stretched affordability off the back of increasing interest rates, a firm bounce back in values is not expected.”

Further increases to the official cash rate are coming, but Goodall says the shifts aren’t having the same impact on mortgage rates as previously, due to the changes already being “priced in”, and the banks competing hard for the reduced pool of lending.

“As expectations of mortgage rates nearing their expected peak become more common, housing affordability is likely to improve which could add to an increase in property demand.”

Goodall says If this is the case, and sentiment follows, buyers anticipating the trough may buy before the turning point, thus contributing to the turning point itself.

He says property value growth may not immediately bounce back to any great degree but it would still spell the end of a downturn which has been relatively orderly to date.

“Mortgagee sales remain low, although there was a lift in the second quarter of this year to 21, from six in the first quarter, still well below the peak of 777 in the second quarter of  2008.”

A strong labour market, with low unemployment has clearly assisted in ensuring home owners continue to keep up with their mortgage repayments – credit arrears remain low, according to both credit agency Centrix and the Reserve Bank.

The other topical market factor is the vulnerability of the construction industry and discussion of the recent strength in building consent figures eating into the prior deficit of homes required.

Goodall says it is a notoriously difficult statistic to calculate as it requires a number of assumptions including when the starting point is, how household sizes have changed and are changing over time and the location/size/type of housing being built, but it still appears as if an oversupply of housing is some way off.

“For the construction sector, the recent Government announcement of the Build Ready Development Pathway to support stalled construction will be welcome news to the industry faced with diminishing commitments for new builds, desperate to avoid another bust cycle,” he says.

“On the face of it the Government backed pathway should provide a boost in certainty and confidence for developers to continue to build their pipeline of work.”

Davidson says although there’s a lot of water to go under the bridge, some people are now looking more confidently at a National-led Government after the next election, which could see a reversal of the Brightline Test extension and the reintroduction of interest deductibility for investors in existing properties.

“Of course, it pays to be cautious here. Politics can change quickly, and new Governments don’t always reverse the other guys’ policies when it comes to tax.

“Overall, there may be some light at the end of the tunnel, but it may not arrive until 2023 – and any rises in unemployment in the meantime would be an extra challenge.

“Ultimately, individuals will make up their own minds about when ‘value’ has returned to the market. Analysts generally have to pick trends from averages/medians/aggregated statistics. But people don’t buy the average; they buy and sell individual properties, and there may well be some bargains out there already, regardless of what the broader market is doing.

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