Australia | Nov 04 2008
By Chris Shaw
Signs of weakness in the Australian economy are finally spreading to the housing sector as prices in the September quarter fell 1.8%, with declines being recorded in every mainland capital city during the period. For the six months to the end of September house prices fell 2.1% nationally, the largest decline since 1986.
As Westpac senior economist Matthew Hassan notes, while annual price growth is still positive at around 2.8%, this number is expected to turn negative in the December quarter. He also notes performance has varied according to capital city, with Perth delivering the weakest results recording falling prices of 1.1% for the quarter and 4.1% in the past year.
In contrast, there has been a relatively flat outcome in Sydney and annual growth for the year to September 30th of between 5-10% in Brisbane, Melbourne and Adelaide, though Hasan points out much of this is due to strong performance at the end of 2007.
The performance is not exactly a surprise in Hassan’s view, as the market had been struggling with mortgage rates hitting 9.6% in the September quarter, which was a 16-year high. At the same time, affordability continued to decline and financing was tough to obtain. Throw in the global financial crisis and it has well and truly been a buyer’s market in recent months.
On the plus side, Hassan notes the shortage of supply means the Australian market continues to outperform the US, UK and New Zealand, where in percentage terms prices have fallen by double-digit amounts over the past year. The other positive in his view is monetary policy should start to prove supportive given rates have fallen from their peak and a further cut in official interest rates is expected today, with more seen as likely to come in the next few months.
On Hassan’s numbers, the 125-basis point fall in official interest rates from their peak equates to around a 10% fall in house prices in terms of affordability, while both the Federal and State governments are helping out buyers by increasing concessions such as the recently announced lift in the first home buyers grant.
In Hassan’s view, this means while conditions will remain challenging in 2009 they won’t be as bad as experienced in recent months, which should have positive implications for the outlook for the Australian housing market going forward.
