Shane Oliver again tips 5 to 10 percent property price falls for Sydney and Melbourne
AMP Capital chief economist Shane Oliver has forecast a slowdown in property price gains in Sydney and Melbourne this year ahead of a 5-10 percent price fall starting next year.
The call comes in the wake of the Australian Prudential Regulation Authority’s announcement on Friday of tougher lending standards, including a crackdown on interest-only home lending.
Dr Oliver said it was no surprise to see APRA increase its focus on the investor lending market, but told The Australian the moves had come too late.
“The latest moves by APRA, coming on the back of bank mortgage rate hikes over the last two weeks, the likelihood of action to boost affordability in the May budget (including a cut to the capital gains tax discount), and the surge in unit supply at a time of silly prices, are all likely to result in a slowdown in property price gains in Sydney and Melbourne this year ahead of a 5-10 per cent price fall starting next year some time,” he said.
Based on the latest APRA data, CBA is the bank with the highest annual home loan growth of 7.6 per cent, compared to system growth of 7 per cent.
Westpac was up 6.4 per cent, ANZ 5.7 per cent and NAB 5.2 per cent.
CBA’s interest-only loans are growing at 42 per cent and account for 40 per cent of its book.
Home loans account for 62 per cent of all bank loans.
The tighter interest only slowdown measures from APRA came as the RBA’s latest quarterly spreadsheets on household finances, released on Friday, showed that average debts were now 89 per cent greater than incomes, up from 67 per cent greater just four years ago.
While household debts have risen by 32 per cent in the past five years, the value of household assets have risen even faster, by 51 per cent. Household net worth has gained 57 per cent over that period, from $5.6 trillion to $8.8 trillion, translating to an increase from $666,864 per household to $954,550 in just five years.
The booming housing markets of Sydney and Melbourne are a large part of this increase, with the value of the housing stock rising by 47 per cent, from $4.2 trillion to $6.1 trillion. The size of the housing stock has increased by 8.5 per cent over that period, so the increase per house has been about 33 per cent.
Oliver has previously predicted 5 to 10 percent price falls.
Last October he noted the surge in prices and debt has led many to conclude a crash is imminent.
"But we have heard that lots of times over the last 10-15 years.
"Several considerations suggest a crash is unlikely.
"First, we have not seen a generalised oversupply and at the current rate we won’t go into oversupply until around 2017-18.
"Second, despite talk of mortgage stress the reality is that debt interest payments relative to income are around 2004 levels.
"Third, Australia has still not seen anything like the deterioration in lending standards seen in other countries prior to the GFC.
"In fact in recent years there has been a decline in low-doc loans and a reduction in loans with high loan to valuation ratios."
Oliver noted it is dangerous to generalise before saying nationwide price falls are unlikely until the RBA starts to raise interest rates again.
"This is unlikely before 2018, at which point we are likely to see a 5 percent or so pullback in property prices as was seen in the 2009 and 2011 down cycles.
"Sydney and Melbourne having seen the biggest gains are more at risk and so could fall 5-10 percent around 2018."
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