Aus residential property: little sign of optimism

David Plank

Head of Australian Economics at ANZ

Confidence in Australia’s housing sector has fallen further and is now at its lowest level since the survey commenced in 2011, according to the March quarter ANZ-Property Council survey.

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While this is clearly a very soft result it is not surprising given the weakness evident in most other housing indicators.

"Housing prices, credit, auction results, days on market and vendor discounts are all weak.”

ANZ Research’s recent housing update noted many indicators are around their worst levels in many years. Housing prices, credit, auction results, days on market and vendor discounts are all weak. Moreover, there is little sign of improvement.

The ANZ-Property Council survey is consistent with these other indicators and suggests there will be an extended period of weakness in the housing sector.

One of the most important indicators in the survey relates to finance availability. This is particularly relevant in the current environment where macroprudential policies and tighter bank lending conditions triggered the initial slowdown in the housing sector.

In the latest survey, firms expected finance availability to worsen further over the next 12 months from what was already the worst level on record.

More than 50 per cent of survey respondents expect finance availability to worsen in the year ahead, compared with just 10 per cent expecting it to improve. ANZ Research expects the broad credit environment is likely to worsen before it gets better.

The ongoing implementation of Comprehensive Credit Reporting (CCR) will give lenders greater visibility around borrowers’ debt obligations and likely weigh on people’s borrowing power. The final report from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Sector (due February 2019) also presents some down-side risk to the credit outlook.

With this challenging backdrop, it is little surprise firms are pessimistic on the outlook for housing prices and construction.

One important point to keep in mind, though, is the pessimism is mostly centred on New South Wales and Victoria. Of the respondents operating in the residential sector in New South Wales and Victoria, a net 76 per cent and 64 per cent respectively expect housing prices to fall next year.

There has been a sharp downward shift in sentiment in the ACT but for the country as a whole, only 34 per cent expect housing prices to fall.

As for whether the decline in residential price sentiment should be seen as an additional signal about the market, ANZ Research’s view is sentiment has been lagging rather than leading prices over the past few years.

Certainly sentiment held up in 2018 until well after the market had clearly turned down.

ANZ Research sees the current level of sentiment as consistent with expectations of further residential price declines in 2019 rather than as something that should cause a further revision of numbers down.

David Plank is Head of Australian Economics at ANZ

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.