Australia’s biggest property downturn since pandemic threatens economic growth

Australian home prices fell for a fifth month in August in the biggest downturn since the pandemic, and there is further pain ahead as stubborn inflation puts upward pressure on interest rates. Figures from property consultant Cotality released on Tuesday showed national home prices fell 0.9 per cent in August from July, when they dropped 1.2 per cent. Sydney and Melbourne again led the monthly decline with falls of 1.4 per cent and 1.1 per cent, leaving prices down about 7 per cent from their peaks. Falling house prices threaten to erode household wealth and curb consumer spending just as Australia’s economy faces the risk of a sharper slowdown. Data on Wednesday is expected to show annual economic growth eased to 1.8 per cent in the second quarter, from 2.5 per cent in the first quarter, a cooling engineered by the Reserve Bank of Australia (RBA), which has warned interest rates can still go higher. “We are probably only about 35 per cent of the way through the slump both in terms of the percentage fall and months,” said Shane Oliver, chief economist at AMP, who is tipping a peak-to-trough home price fall of 10 per cent in this cycle and a turnaround in the second half of next year. “The home price slump will weigh on economic growth, but is not significant enough yet to change the direction of the RBA rate moves from up to down given the inflation problem,” he said. Separate data on Tuesday showed net exports added 0.1 percentage points to GDP growth in the second quarter, while government spending also contributed 0.1 percentage point, although that was more than offset by a 0.3 percentage point drag from business inventories, leaving quarterly growth stuck at a sluggish 0.3 per cent. A sustained slump in housing turnover would have wide implications for the economy given the housing sector’s extensive links to industries ranging from real estate services to tradespeople and construction. Housing credit growth has already started to slow. Little relief in sight UBS analysts said it was increasingly likely house prices would drop towards 10 per cent in this cycle, which would be among the worst downturns in Australia, leaving the central bank facing a policy dilemma given falling house prices and high inflation. “Overall, UBS still expect the RBA to raise the cash rate by another 25bps [basis points], by November,” they said in a note to clients. “The more likely timing remains in November, but the risk of an early hike at the next meeting in September is now material.” There is little relief in sight for the sector after the government’s tax changes announced in May cooled investor demand. The RBA has raised the cash rate three times this year to 4.35 per cent, and markets are fully pricing in another hike this year after a hot inflation print for July. Nearly all capital cities recorded a fall for August, with the heat finally coming out of boom markets like Brisbane and Perth, which fell 1 per cent and 0.8 per cent respectively after double-digit gains this year. Tim Lawless, Cotality’s research director, said the softer trend in values was underpinned by weaker transaction activity, adding that sales for the past three months were down 15.5 per cent from a year earlier. “Longer selling times, larger vendor discounting and persistently low auction clearance rates all point to a buyer’s market, yet buyers are lacking the confidence to transact at the moment.” The slump is hitting the nation’s biggest banks, with mortgage applications dropping as much as 20 per cent since the budget and one CEO saying “volatility and uncertainty” were more structurally present than for decades. Last week, one of Sydney’s biggest developers, Bathla Group, fell into insolvency owing A$3.3 billion (US$2.4 billion). The challenge is an extreme version of the one facing governments around the world after decades of leverage-fueled and state-sanctioned home price gains. Policymakers must figure out how to deflate frothy property markets and boost affordability, without derailing the economy at a time when inflationary pressures are driving up borrowing costs. The risk for Australia is any prolonged downturn could hit families in their pockets at an already tough time. A measure of consumer confidence fell to “deeply pessimistic” levels in June. About 60 per cent of household wealth is tied up with property, according to Commerzbank. “People don’t transact in a high-ticket item like property when they are not secure about their finances or the broader economy,” said Nicola Powell, chief residential economist for Domain, an online property portal. Additional reporting by Bloomberg

Australia’s biggest property downturn since pandemic threatens economic growth

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Home prices fell for a fifth month in August, threatening to erode household wealth and curb consumer spending

Home prices fell for a fifth month in August, threatening to erode household wealth and curb consumer spending