Decline in house prices continues to slow

Australian house prices continue to decline; however, the good news is that the pace of decline is starting to moderate. Since peaking in September 2017, across the nation we’ve seen house price falls of about 10 per cent, although across Sydney and Melbourne these have been larger, at about 15 per cent and 11 per cent respectively.

Across the rest of the country, things are still looking quite soft, and there is more downside likely to come. We believe house prices will fall by about another two per cent nationally over the next six months, with the falls largely focused in Sydney and Melbourne.

Negatives impacting the housing market

There are still a few negatives impacting the housing market, including lower demand from foreign buyers, tighter lending standards imposed by the banks (particularly for investors), a big inflow of supply - especially for apartments across Australia’s east coast - and owner occupiers moving from interest only to interest and principal paying loans.

Positives impacting the housing market

The good news is we are becoming a bit more positive on the outlook for the housing market, particularly due to a few events that have occurred over the past month. Firstly, the Coalition victory in the Federal election means Labor’s proposed changes to negative gearing and capital gains tax, which would have had a big impact on the housing market, won’t go ahead.

Secondly, the Australian Prudential Regulatory Authority (APRA) introduced a decrease in the seven per cent serviceability measure, which means lending standards have been loosened slightly.

Additionally, the Federal government announced a first home buyer’s scheme, allowing first home buyers to buy a property with just five per cent deposit and no lenders mortgage insurance, which will assist more first home buyers entering into the market.

And lastly, the Reserve Bank of Australia (RBA) has cut interest rates. We believe the cut is likely to flow through to mortgage rates, which will, in turn, make paying the mortgage easier for households, and probably provide a boost to the housing market.

Is there a bottom to the housing market in sight?

We think that house prices will probably bottom at the end of this year, and we think those top-to-bottom price falls since the 2017 peak will be about 12 per cent nationally, down from the 15 per cent we were previously forecasting to occur by late 2020. So, overall, we are a bit more optimistic on the housing market because of recent developments.