Sydney property price falls could have rippled effect across economy

Sydney property price falls could have rippled effect across economy
Sydney property price falls could have rippled effect across economy

House price growth is typically regarded as a good thing. It creates a feel good wealth effect which triggers spending across the Sydney economy.

But over the past few weeks, ANZ, Moody's Analytics, BIS Oxford, Macquarie Securities, HSBC, Citi, JP Morgan and UBS have all adjusted their price forecasts downwards for the Sydney residential market outlook. 

Most of these economists are saying prices will fall by somewhere up to 10% from peak to trough.

For most property owners who are happy where they are, its not something that is going to directly affect their bottom line. They might just think they are not as wealthy.

The reduced values could certainly affect existing homeowners refinancing mortgage loans in what is already a tougher post-royal commission lending landscape.

The sellers this spring who have owned their home for an extended time are on the whole likely to come up a little short of the stellar price that their new neighbour paid last year.

But with huge 75% gains made during the five year long post-2012 boom, they will be fine.

This downturn, if it stays moderately quarantined, will only truly impact those who bought in the past two years, paying over the odds, and now wanting to sell.

These resales are actually few and far between, although I spotted one in Surry Hills.

The ninth floor, one bedder sold for $753,000 having sold in early 2017 at $770,000.

All up when the $20,000 loss is added to costs, the seller would be down by $70,000.

But at least there was activity arising from the listing which highlights home buying is more affordable for buyers.

There were three bidders for the apartment, so two are still looking.

The NSW Treasury actually anticipates a slowdown in sales activity, which could limit the price falls, but will unquestionably affect many more players in the property market.

Treasury expect just 183,000 annual sales, as property transactions are put on hold.

This figure is down on the prior 210,000 annual sales tally.

That means 27,000 fewer agency commissions and solicitor contracts.

Less bank or mortgage broker loans.

Fewer tradies tasked to fix up those long overdue unhelpful selling issues like the leaking gutters.

No need for those fresh flowers for the Saturday open for inspections. 

Maybe no need for 54,000 bottles of champagne - one for every seller and buyer.

It is this ripple effect which affects the wider economy and potentially triggers a recession.

The Reserve Bank of Australia governor Philip Lowe recently suggested the current decline was "manageable".

Australia had gone through "plenty of periods" in the last two decades where prices have declined," Dr Lowe said.

"That's what happens in the housing market – we have these big run-ups, prices stabilise, sometimes they might fall, stabilise and then they'll rise again.

“We are watching it carefully.

"As long as it's not a very large decline – it's manageable."

Of course, full time secure jobs have traditionally been the key to owning and holding the family home.

So it is to be hoped the 8,000 layoffs announced this month by Telstra don't become endemic.

This article first appeared in The Daily Telegraph. 

Jonathan Chancellor

Jonathan Chancellor

Jonathan Chancellor is one of our authors. Jonathan has been writing about property since the early 1980s and is editor-at-large of Property Observer.

Tags: 
Australian Economy Residential Market Trends

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