Sydney house prices: Market on a knife edge as recession fears grow – The Australian Financial Review

The housing market has so far defied gloomy predictions of sharp declines, with home values ending the financial year down by 4.9 per cent, which is much smaller than many experts expected
The potent supply versus demand imbalance prevailed over the damaging impact of 12 interest rate rises, lifting prices by 3.3 per cent across the combined capital cities in the past three months alone according to CoreLogic.
Low listings have fuelled house price increases in the main capital cities despite rising interest rates. Peter Rae
Sydney led the biggest gains with home values climbing by 4.9 per cent, followed by Brisbane with a 3 per cent increase and Melbourne with a lift of 1.7 per cent.
Pat Bustamante, a senior economist at St George, said most evidence so far suggested that the long-term fundamentals of supply and demand would prevail over time and push prices higher.
“The supply and demand imbalance will continue to dominate until the RBA starts cutting rates next year,” Mr Bustamante said.
“We’re still expecting population growth to be strong in the next few years, the job market continues to be tight and household’s balance sheets remain robust.
“Meanwhile, the number of houses being built continues to fall and that’s not going to increase anytime soon in a meaningful way. So, we’re not expecting house prices to go backwards this calendar year.”
But other experts insist that the surprise interest rate rise last month and expectations of more to come has significantly increased the risk of another downturn in house prices.
“The risk of a double downturn in the housing market has increased dramatically since the last rate rise, and if we were to see more interest rate increases, I think it significantly risks a recession for the economy, which could spark distressed selling,” said Louis Christopher, SQM Research managing director.
“I believe lifting rates at a time when we know consumer confidence is falling, when job ads have come off a bit, and when building constructions dropped off a lot, is dangerous. If we see a recession where unemployment increases, then prices could fall again.”
New homeowner Nathan Freebody – who recently bought a three-bedroom house for $900,000 in Stafford, nine kilometres north of Brisbane CBD – knows too well about buying in a market where there are more buyers than listings.
“I’ve been looking to buy a place since December last year and found it exceedingly competitive even in a supposedly down market,” Mr Freebody said.
“I’ve missed out on a number of properties I was keen on because people are willing to pay more than what the property is worth. I went to one auction where the property was sold for $200,000 more than we expected.”
Nathan Freebody bought a three-bedroom house for $900,000. Tertius Pickard
“I think there were people emotionally purchasing property because there’s just a lack of supply and people need to find somewhere to live.”
Mr Freebody said he bought a home after being unable to secure a rental property on his own.
“There’s hardly any vacant apartments in Brisbane,” he said.
“I was also under pressure to offer much more than the asking rent and to pay a lump sum. Even then, it was difficult to secure a lease because I was on my own and the agents seemed to consider me a higher risk, so I figured I might as well buy my own place.”
AMP chief economist Shane Oliver said interest rates were likely rise two more times to peak at 4.6 per cent this year, which could potentially drive the economy into a recession.
“There’s a risk that these extra rate hikes can spark a recession, causing much higher unemployment and potentially break the housing market, as was the case in the early 1980s and 1990s recession,” Dr Oliver said.
CoreLogic data shows house prices dropped by 9 per cent across the combined capital cities in the early 1980s recession, with Sydney plummeting by 25 per cent. During the early 1990s recession, national home prices fell by 6 per cent and Sydney was down by 10 per cent.
“If we manage to avoid a recession, then I suspect that prices will continue to rise, probably at a slower rate than they have lately. So, my base case is that we’ve seen the lows in terms of house prices, but the risk of another leg down is very high,” Dr Oliver said.
CoreLogic’s daily home value index showed Sydney prices rose by 1.7 per cent over the 28 days to June 29, slightly slower than the 1.8 per cent gain in the previous month. Similarly, Melbourne lifted by 0.7 per cent, lower than the 0.9 per cent gain last month, while Brisbane increased by 1.3 per cent, also smaller than the 1.4 per cent gained in May.
“The results could be a sign that buyers’ sentiment is starting to shift on the back of the June rate hike and growing expectations that the rate hiking cycle has further to go,” said Tim Lawless, research director of CoreLogic
“I think the next six months or so will be quite fascinating in the housing market as we move through this period where more households will be exposed to the full rate hiking cycle and where sentiment will probably fall further.
”Whether it pushes housing prices lower once again is yet to be seen because we’ll still be left with an under-supply of homes available to purchase, may be even more substantial than what we’re seeing at the moment if we see more homeowners delaying their selling decisions.“
The flow of fresh listings to the housing market has been tracking below the five-year average since September last year, and low available stock was one of the key factors supporting housing values, Mr Lawless added.
Over the four weeks ending June 25, the number of capital city listings was tracking 26 per cent below the previous five-year average and the regional listings were 33 per cent lower.
“I think that the fundamental reason we’re seeing housing prices rising is simply that disconnect of available supply and demonstrated demand,” Mr Lawless said.
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