The Australian economy for the past four years has been dominated by two booms – the end of the mining investment and the housing price one. The latest GDP figures suggest that the transition from the end of the mining boom has now occurred, and the latest housing price figures released this week suggest we have also reached the end of the housing boom.
Since the RBA began cutting interest rates, the housing boom has mostly been about Sydney and to a lesser extent, Melbourne. So it is significant that the latest residential housing price data released on Tuesday showed that the housing prices in Sydney fell 1.4% – the biggest fall since December 2015.
Elsewhere, Melbourne residential prices slowed dramatically – up just 1.1% compared to 3% in the June quarter, and prices in Perth continued to fall – they are down nearly 10% on 2014 levels – while in Hobart prices were up a very solid 3.4%.
It meant overall residential prices across the country were down 0.2% – the biggest fall since March last year:
The quarterly growth figures can be a bit noisy, but the annual growth figures confirm that a sowing has occurred – even if in Sydney residential prices remain 9.4% above where they were a year ago – at least that is down on the 14.4% annual growth that was occurring in March:
The slowing was not altogether surprising given what has been happening with housing finance.
The latest data out last week showed the lowest annual growth of housing finance since September last year, as investors departed the market in droves:
As I have previously noted, there is a good correlation between the growth of housing finance and house prices six months later. The continuing slowing of housing finance suggests that there will be little chance of a recovery in the growth of housing prices anytime soon, and if anything, housing prices seem to be slowing quicker than would be expected:
And so the question turns to whether or not the end of the housing boom will come with a bang or a whimper.
One interesting aspect is the difference between the growth of the prices of apartments and other “attached” dwellings, and that of stand-alone “established” houses. Generally the prices of the two move in sync, and that is what we are seeing in Sydney.
In the September quarter the average price of apartments fell by 1.4% - the biggest quarterly fall for six years – while established house prices fell 1.3%. It means that both elements of the Sydney housing market are mostly moving together – with the annual growth of both being down on where it was six months ago:
But this is not the case in Melbourne and Brisbane – the two cities which have caused the most concern for the Reserve Banks about the over-supply of apartments. Since 2015, while the price growth of established houses in Melbourne has generally increased from 5.8% to the current 15.5%, that of attached dwellings has mostly stayed around the 3.5%-4.5% range:
In Brisbane, where the price of established houses has been growing steadily at a touch over 4% for the past two years, the price of attached dwellings has actually been falling for 12 months:
One would suspect that would make those markets more susceptible to a harder fall – especially when you consider that since the Reserve Bank began cutting interest rates in November 2011, the price growth of established houses in Melbourne has far outstripped that of apartments – 60% compared to 22%:
One of the beneficiaries of the lower growth of apartment prices has been first-home buyers.
Research by the Reserve Bank released last week found that measuring housing affordability for first-home buyers was complex as most first-home buyers “buy homes that are cheaper than the average” and you need to consider the ability to repay a mortgage, the quality of the homes available, and the distance from the CBD.
The Reserve Bank found that “the average number of bedrooms in affordable housing has declined over the past 20 years, most notably in Sydney” – due mostly to apartments now being smaller. But it also found that while the average distance from the CBD of affordable houses has increased over the past 20 years – in Sydney from slightly over 40km to a touch less than 60km – the distance from the CBD of affordable apartments has remained relatively stable.
The research also found that there has been a surge in the share of potentially affordable apartments for first-home buyers in Brisbane and Melbourne, but not so for established houses. It found that “houses have become less affordable than apartments in all cities and regions recently.” The RBA suggests this is “likely to be due to an increase in the relative scarcity of houses given the large increase in the supply of apartments over the past few years.”
This increase and the boost in the first-home buyers grant in NSW and Victoria has seen the level of first-home buyers improve significantly in the past six months:
Whether the slowing of the price growth of apartments will lead to a similar slowing of established houses so that their affordability improves, remains to be seen. But all signs at the moment suggest that the boom is over, and it is now all about how sudden will be its end, rather than how much higher can house prices go.
