Tuesday, April 13, 2010

As buyers vanish home prices will...

Buyers are deserting buyers the Sydney property market at the rate of 1000 per month, causing real estate professionals to predict an "exhausted market" with increasingly weak price growth throughout the rest of the year.

High auction clearance rates and record prices notwithstanding, official figures show the number of loans to buy houses in NSW slipped from a recent high of 19,600 in September to just 14,300 in February after sliding in every one of the past five months.

The NSW slide of 27 per cent is worse than in any state other than South Australia. Victorian housing loans slid the least, by a seasonally-adjusted 12 per cent.

"This will lead to a slowing of price growth, no question about it," said Real Estate Institute national president David Airey.

"The housing market moves slowly. Unlike the stock market it doesn't jump around on a daily or even weekly basis. These things take six to nine months to filter through... but we will look back on the March quarter and say it was pretty buoyant, we will look back on June and say it was more normal, and we will look back on September and December and see the combined effects of interest rates and simply an exhausted market."

"All the capital gain will have been in the top half of the year, between now and June."

The Bureau of Statistics figures show that this February was the worst for home loans since 2001. Nationwide just 2174 Australians borrowed to buy new homes, a figure that also reflects the low number of new homes on offer.

In February a mere 2293 NSW first home buyers took out loans, down from 5941 in July before the phase out of the First Home Owners Boost and the Reserve Bank's string of interest rate increases.

"First home buyers are leaving the market and there is no evidence that owner occupiers and investors are replacing them in sufficient numbers," said Housing Industry Associatiion economist Harley Dale.

"The prospects for a second stage building recovery are diminishing amidst rising interest rates, lack of available credit, and persistently high supply barriers to
new housing."

ICAP Securities economist Adam Carr said the figures should make the Reserve Bank reconsider the pace of its rate rises.

"House credit growth is not, as the Bank would have us believe, solid," he said. "That is simply not true and more to the point, the Bank has said previously that house price growth isn’t a problem unless accompanied by a build up in leverage. This argues for a softer rate hike touch."

The latest RP Data figures show Sydney prices continuing to climb at an annual pace of 12 per cent and Melbourne prices climbing 19 per cent.

"But as sure as the sun comes up tomorrow we won't have that kind of extraordinary growth continuing," said Mr Airey. "If we did nobody would be able to afford to buy property."

"Plenty of people smarter than me will say Melbourne will be the first to slow, but they've been wrong before. Sydney has a way to go to catch up so its prices might continue to climb for longer."

The latest Westpac Melbourne Institute survey found a collapse in the proportion of Australians believing that "now is a good time to buy a dwelling". The proportion agreeing slid from 62 per cent in December to 42 per cent in March.

The proportion agreeing that the wisest use for savings was "paying down debt" climbed to 27 per cent, its highest level on record.

Sliding fast

Home loans since September

NSW down 27%
Queensland down 25%
South Australia down 29%
Tasmania down 25%
Western Australia down 16%
Victoria down 12%

ABS 5609.0, seasonally adjusted.

Published in today's SMH and Age

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