Sydney & Melbourne property prices expected to fall by up to 4 per cent

According to the latest report from property analysis firm SQM Research, housing prices in Sydney as well as melbourne are predicted to fall by up to 4 percent this year.

This is a major reversal of its formerly rosy forecast — that two priciest cities of Australia would see their prices surge by around 4-8 per cent.

SQM Research says that the Sydney as well as Melbourne property markets are overvalued by at least 45%, based on its comparison of nominal aggregate incomes to housing prices.

It expects “this overvaluation to wind down somewhat over an extended period of time”.

Its new downgraded forecasts for 5 capital cities of Australia are:

  • Sydney -4 to 0 per cent
  • Melbourne -3 to 1 per cent
  • Darwin -5 to 0 per cent
  • Brisbane 0 to 3 per cent
  • Canberra 1 to 4 per cent
  • Not expecting a ‘housing crash’

However its forecast for Adelaide (0 to 4%), Hobart (8 to 13%) as well as Perth (1 to 4%) remains unchanged.

Not expecting a ‘housing crash’

SQM predicts that prices across capitals of Australia, on average, to fall by around 2% (at worst), or rise by 2% (in the best case scenario) this year.

Louis Christopher, the firm’s managing director as well as the author of the report,  believes that tighter lending standards for reducing borrowing risks “is now affecting the national housing market as a whole”.

“This action, predominantly targeted at property investors, has triggered a decline in demand for residential property.”

However, he also stressed that SQM wasn’t expecting a “general housing price crash” this year as the economy is overall “healthy”.

He said that this was because of “relatively low and stable” unemployment (at 5.5% in March) as well as population growth being “very strong”.

Even if the downturn becomes more pronounced, the firm believes the Reserve Bank plus the state & federal governments will intervene for stabilising the market.

Sydney & Melbourne market deteriorates

Several major indicators caused SQM to revise its previously rosy forecast.

“Leading indicators such as auction clearance rates, total aggregated property listings and asking prices suggest further deterioration in market conditions in recent weeks,” said Mr Christopher.

The number of Sydney property listings has increased by 34% over the year. He noted that they are “now at similar levels recorded in 2011 — a point in time when Sydney dwelling prices fell 3 per cent for the year”.

Inspite of that, Sydney’s auction clearance rates have dropped to the low-to-mid 50% range, Mr Christopher observed.

He said “the clearance rate may have dropped further to below 50 per cent” in late April.

“These are levels which, historically, have translated into price falls.”

The  vendors of Sydney have also had to capitulate as well as reduce their asking prices (-1.1pc for houses, & -0.6pc for units), which would lead to a “negative pricing result” for the June quarter.

Mr Christopher observed weaker trends in the Melbourne market, however said it was “a little stronger than Sydney”.

“Asking prices, after rising at year-on-year levels of up to 22 per cent, have slowed in pace to an annualised rate of 5 to 7 per cent.”

Brisbane & Darwin downgrade

Brisbane was expected to see housing prices increase by 3 to 7%; however it is now headed for a 0 to 3% gain at best, according to SQM.

“Building approvals [in Brisbane] are falling and this will eventually help absorption levels of existing surplus stock,” said Mr Christopher.

“However, given the slow investor take up, it will take many months before the market returns … to equilibrium.”

Darwin is the worst-performing city, which is expected to fall by up to 5%, & remain flat at best.

Already Darwin has suffered a 4 year housing downturn & SQM believes that there is still room for prices to drop even further.

Vacancy rates increased unexpectedly in the March quarter, a time when vacancies generally fall, while Darwin’s rents have dropped sharply since their peak (down by 31% for houses, & 45% for units).

Moreover, the number of property owners in Darwin listing their properties for sale has more than doubled since the lows recorded prior to the downturn.