Housing market outlook softening: ANZ, Property Council
The September ANZ-Property Council Survey has found sentiment in the housing market has declined noticeably with the the housing market expected to continue to cool through 2017 and 2018.
The survey noted the impact of APRA’s regulation is taking hold as firms report greater difficulty obtaining finance.
David Plank, head of Australian economics, ANZ, said the September quarter ANZ-Property Council survey shows that sentiment is cooling in the property sector.
"This is perhaps not surprising for the housing sector, but somewhat at odds with the strength in non-residential building approvals," he said.
"Expectations of a cooling housing sector are in line with the regulation-induced slowdown evident in slower house price growth and weaker auction results in recent months.
"APRA’s crackdown on the investor segment has seen borrowing costs rise and the availability of finance tighten.
"As a result, firms are reporting a softer outlook for construction activity and prices over the next 12 months, which is in keeping with ANZ’s view.
"But it’s not all bad news.
"Despite a softer outlook for economic growth, firms continue to report solid demand for labour, suggesting that employment growth will remain positive.
"The survey also provides further evidence that the mining states have moved past the bottom of their mining boom adjustment.”
The survey said the outlook for Australia’s property sector has eased recently, but remains at solid levels.
"The quarterly decline was led by a softening outlook in New South Wales and Victoria," the survey said.
"The drop in sentiment in this survey does not ring alarm bells, given that sentiment across most regions remains higher than it was a year ago.
"The mining states have been the key drivers of this improvement, with confidence in Western Australia bumping around the highest levels in three years, while Queensland’s recovery from the trough of 2016 continues.
"Survey respondents suggest that the outlook for the housing market is softening, with a variety of indicators pointing toward a weaker market going forward.
"Construction activity, capital values and the forward-work schedule are all expected to ease over the coming 12 months. Staffing levels in the housing sector are also expected to ease, in contrast to the more positive outlook for the property sector overall.
"The sector has started to cool in recent months, with Sydney house-price growth slowing to 12 percent y/y in May, from 20 percent y/y just two months earlier.
"Similarly, monthly building approvals have fallen around 15 percent from the peak a year ago. It is increasingly apparent that the tighter macroprudential regulation from APRA is having a negative impact on the industry.
"The additional regulation is resulting in a continual worsening of the availability of debt finance. While tighter funding conditions are being reported across all sectors of the property market, the impact has been most pronounced in the residential segment.
"As a result, only 37 percent of respondents expect house prices to rise over the next 12 months, and 31 percent expect construction activity to rise, down from 49 percent and 38 percent respectively three months ago.
"Similar to the housing segment, all retail indicators softened in the September survey.
"Both capital value and construction activity expectations fell to the lowest levels on record, reflecting the fact that the industry faces a number of challenges. Only a net 10 percent of respondents expect retail property values will rise over the next 12 months, down significantly from 44 percent a year ago.
"Household spending remains subdued, in line with wages bumping around historically low growth rates.
"In addition, the large list of global retailers that are either ramping up their presence in Australia or preparing to enter, is putting significant downward pressure on retailers’ margins. An additional headwind going forward is likely to be the expected slowdown in house price growth.
"Significant wealth increases over recent years have supported consumption through a period of low income growth, but slower house price growth will lessen this support. The retail sector has already lost 20k jobs nationwide over the past 12 months, and it is difficult to see a significant reversal of this trend. "