Worrying times for property

Despite views to the contrary – mainly from real estate agents – all the signs are that the Australian property market is heading for a correction.

So far the facts are scattered through the various data releases, but if you put them all together prices are under pressure and already retreating in some areas.

The signs have to be encouraging for the Reserve Bank, which has been talking down the market for much of past two years, and for first-home buyers who have been locked out of the market for the same amount of time. The retreat of foreign buyers and superannuation investors might also help here.

Of course the RBA has been sitting on record low interest rates while most of Australia’s financial institutions are now discreetly raising their rates, so it’s not all good news for buyers.

And while first-home buyers might now set their sights on one of the new apartment blocks, where prices are definitely stalling, the freestanding housing market seems to have turned into a tug-a-war between buyers and vendors with the latter not willing to take a price snip. Subsequently stock is being withdrawn from the market.

Let’s have a look at the data:

 Sentiment is poor – Two out of three Australians believe the housing market is vulnerable to a “significant” correction according to a study by CoreLogic and TEG Rewards. Both buyers and sellers were reluctant to transact in this type of environment, says the report.

Foreign buyers are under pressure – Victoria is doing its bit to reign in speculative foreign purchases of residential property by lifting the surcharge on foreign transactions from 3 to 7 per cent. In addition to the higher rate the state will also triple the surcharge on ‘absentee landholders’ to 1.5 per cent.

It may be all too late as National Australia Bank figures show purchases of new properties in Victoria by foreign buyers fell 10.7 per cent  from a peak of more than 30 per cent back in 2014. Foreign purchases also fell in NSW, but they rose in the cheaper Queensland market.

Investors are also withdrawing – Loans to investors fell for a sixth straight month in February as lenders responded to regulator-driven demands to tighten housing credit. New credit to investors for home construction, sale or rent stood at a seasonally adjusted $11.9 billion, 7.3 per cent down on the $12.8 billion-worth granted in the same month a year earlier.

Housing costs rising – As the Reserve Bank ponders cutting rate to combat a bout of possible disinflation a survey by the Australian Financial Review reveals that more than 20 mortgage lenders have bumped up loan rates in the past eight weeks with other major banks expected to follow. Higher priced wholesale funding and prudential pressure to build up large capital reserves are to blame. (Banks may hold fire here with a federal election in the offing)

Couple all this with bank practices coming under pressure from various government agencies and the threat of oversupply in some areas, particularly in Melbourne, and it becomes a very nervous time for the property market.

In fact the RBA implicitly warned in its recent Stability Review that the supply of new apartments in major metropolitan cities could “weigh on prices and rents,” which could reduce the income of property investors and make it harder for them to sell.

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