Australian house prices continue to make headlines for all the wrong reasons.
Core logic has reported Sydney house prices falling 7.4% in 12mths; the biggest drop since 1990. HSBC is predicting house prices will fall up to 16% in Sydney & Melbourne... which suggests another ~9% to come for Sydney.
Why such the drastic move? Aren't interest rates still at historical lows in Australia?
The answer lies in a confluence of factors;
- APRA’s macro prudential measures are curbing credit growth and forcing the banks to hold more capital,
- in light of the Royal Commission, the major banks have tightened credit standards,
- because of the Royal Commission, the cost of borrowing for the banks is rising.
It is also likely that a change in Government next year will see greater regulation as the Hayne Royal Commission makes recommendations. This has and will make it harder for everyday Australians to borrow money. Soon, only PAYG employees will be able to borrow funds at favourable rates.
The tightening credit conditions are not working well with an Australian economy that has a number of households and workers employed on contract, in their own business, or in the ‘gig’ economy (eg Uber drivers). Auction clearance rates used to be a healthy barometer for the property market, with a 70-80% clearance rate showing a robust market. But these rates have dropped off a cliff in recent times, and that is a function of the tightening credit conditions as buyers can no longer secure credit and buy at auction.
With a Labor Shorten government threatening unfavourable changes to Capital Gains Tax, the HSBC estimate doesnt seem a stretch.