House prices notch worst annual fall since GFC

House prices have notched their biggest annual fall since the aftermath of the GFC, with Sydney and Melbourne extending into record territory.

Australian house prices have notched their biggest annual fall since the aftermath of the global financial crisis.

House prices in Sydney and Melbourne fell 0.7 per cent and 0.6 per cent in April, CoreLogic figures released on Wednesday show, bringing their annual declines to 10.9 per cent and 10 per cent respectively.

The NSW and Victorian capitals are now 14.5 per cent per cent and 10.9 per cent down from their respective peaks in July and November 2017, extending their falls further into uncharted territory.

Sydney’s previous worst decline since the firm began collecting data four decades ago was 9.6 per cent between 1989 and 1991, while Melbourne’s worst decline was 10 per cent between 1989 and 1992.

“Sydney definitely has been in record territory for some time, Melbourne hit its record decline last month, and we see falls continuing,” said CoreLogic head of research Cameron Kusher.

“The main thing to take out is obviously values are still declining at a national level but the rate of decline has slowed for the fourth consecutive month. So while that’s maybe encouraging, more regions are seeing declines.”

Nationally, prices fell 0.5 per cent over the month to a median of $519,879. That brought the national annual decline to 7.2 per cent and the total decline since peaking in September 2017 to 7.9 per cent.

At 7.2 per cent, it’s the largest annual fall since the 12 months ending February 2009 in the wake of the GFC — slightly behind the 7.4 per cent annual decline notched in January of that year.

The combined capitals fell 0.5 per cent to a median of $593,401. Every capital city recorded house price falls except Canberra, which notched a 0.4 per cent increase to a median value of $596,405.

Sydney fell 0.7 per cent to $780,672, Melbourne 0.6 per cent to $621,759, Brisbane 0.4 per cent to $484,047, Adelaide 0.1 per cent to $430,352, Perth 0.4 per cent to $440,546, Hobart 0.9 per cent to $452,302 and Darwin 1.2 per cent to $390,621.

It comes a day after Reserve Bank data showed weak lending conditions continued in March, with credit for mortgages increasing by 0.2 per cent, slightly slower than the previous month.

Annual growth in investor housing credit was the lowest on record at 0.7 per cent. “Credit conditions are still tight but they’ve maybe eased off a bit,” Mr Kusher said.

“We’re seeing some borrowers offered lower interest rates, funding costs have come down but even if we were to get an interest rate cut most lenders are still assessing borrowing capacity on a rate above 7 per cent.”

That means while “some people might get a bit more money in their pocket if there is a cut, it’s not necessarily going to drag a lot more buyers into the market”, he added.

The RBA is increasingly expected to cut the cash rate even further from its record low of 1.5 per cent when the board meets next Tuesday.

CoreLogic maintains its overall forecast of total peak-to-trough declines in Sydney and Melbourne of 18-20 per cent.

“Our forecast is we’ll see falls for the remainder of this year until the market hits a trough early to mid next year,” Mr Kusher said. “We still very much expect any rebound is likely to be slow after that.”

AMP Capital chief economist Shane Oliver is predicting deeper falls of up to 25 per cent. “The negatives weighing on the property market remain significant,” he said in a client note.

Those include tight credit, which will get tighter mid-year as banks begin to crack down on borrowers with multiple undeclared loans, the ongoing rollover of interest-only to principal-and-interest loans, and an 80 per cent collapse in foreign demand.

There are also fears Labor’s plans to end negative gearing and capital gains tax breaks for property investors will accelerate falls if it wins this month’s election.

“Taken together these are continuing to drive a perfect storm for the Sydney and Melbourne property markets,” Dr Oliver said.

A rebound is “a while off yet” but he expects prices to “stabilise sometime around next year” via a combination of RBA rate cuts, improved affordability, population growth, slowing new supply and government support, possibly in the form of first homeowner grants or a reduction in APRA’s 7 per cent mortgage serviceability test.

“An earlier rate cut in May could bring forward the bottom in house prices as in the last two cycles they bottomed around four months after the first cut,” he said.

“Although it is worth noting stronger supply conditions, tighter lending standards, higher debt-to-income ratios and depressed investor confidence will likely constrain the response of house prices to interest rate changes this time around.”

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