Australian law firm, Klimek & Wijay Family Lawyers Perth anticipates that the housing market in Australia will weaken further in 2018. This will be characterized by a drop in both prices as well as building activity.
It has designed a leading index that it will use in trying to predict the future direction of home prices and residential buildings in Australia will adopt.
This leading index is known as the MSHAUS index and is designed in such a manner that it leads activity by 3 quarters. The index analyzes an array of factors that affect housing prices and housing market activity. Some of these factors include house price expectations, mortgage affordability, credit supply, rental market conditions, housing accessibility and supply-demand balance.
Every one of the factors that affect housing market prices and activity were negative in 2017’s third quarter. This resulted in the index plummeting to -1, this is a record low.
This is a strong indication of a drop in the home price witnessed in Sydney towards the end of 2017. In addition, it also shows that there is a high likelihood of Melbourne and other east coast markets that were buoyant experiencing progression in the weakening price gains. Bank analysts noted with concern that there might be a further weakening coming into 2018 as indicated by prints of the current quarter. This is because the model they designed is calibrated to always lead activity by 3 quarters. Bank analysts further reiterated that economy is facing a great risk because the consumer who has a high exposure to housing is at a vulnerable state. The analysts noticed that 2017’s third quarter saw average household leverage hit 200% of disposable income, of this, 138% accounts for mortgage debt. This comes at a time when average house prices stand at approximately 8.2 times the average incomes.
ANZ – No national fall in home price
The weak outlook by Morgan Stanley agrees with what most analysts that ABC News interviewed regarding their opinion on 2018 property price forecasts. All concur that property prices are likely to fall nationally and Sydney’s housing market that was once lucrative will lead this assault.
State of housing in 2018
The lucrative east coast markets of Australia began falling in 2017’s second quarter and several analysts do not foresee a change.
However, ANZ with its colossal home loan portfolio is hopeful that the forecasts are wrong. It faces a great exposure owing to its portfolio.
Economists at the bank have come up with a model whose forecast is approximately a 2% decline in home price growth in 2018 before a 4% rise in 2019. The economists wrote that the forecasts of the constructed model are in tandem with their expectations of the price growth of national housing progressing in its decline in the year 2018. However, this will happen moderately and will not fall into negative territory. The analysts continued to say that there are already indications that the weakness observed in 2018 might be improving. This is because current auction clearance rates suggest an ease in the downturn in house price inflation in coming months and this affects housing prices.
Removal of interest-only lending
The weak house pricing outlook has a direct correlation to the crackdown by the bank regulator on riskier lending e.g. ow-deposit mortgages, investor financing and interest-only loans.
Treasurer Scott Morrison in the mid-year budget update told reporters how macroprudential policies of APRA halted east coast house price boom on its tracks. He mentioned that change in interest-only lending severely affected Sydney house prices in 6 months i.e. from 15% down to 5%.
Home lending limits effected on the Sydney Market and to Melbourne but on a smaller scale is because of their expensiveness. This means that borrowers in the 2 cities require larger loans for them to purchase property.
Reduction of the lending amount by banks in response to the regulatory restrictions will only eliminate from the market many prospective buyers at the current prices. High immigration and reduction in housing surplus
Morgan Stanley believes that high immigration intake is hindering a steeper decline for big east coast housing markets. Myth of housing shortage
Despite the fact that census data increased population growth in Australia, it is not high enough to affect the national housing boom.