Sydney Housing Slump Predicted to Last Until at Least 2020

(Bloomberg) -- Sydney’s property market slump will last at least another two years as tougher lending standards and buyer nerves weigh on prices.

That’s the consensus from a Bloomberg survey of 15 economists, over a third of which have turned more pessimistic within the last three months.

Prices Australia-wide have fallen for nine straight months as the housing boom goes into reverse. Sydney, where affordability is most stretched and investors had the biggest influence, is being hit hardest: values in the harbor city are down 4.5 percent in the past year compared to 0.8 percent nationally.

“Sydney is at the epicenter of the housing market downturn,” said Stephen Roberts, an economist at Laminar Capital Pty. “Much of the decline in house prices seems to be related to housing investors and the tightening of lending standards.”

Here are the results of Bloomberg’s survey in three charts:

Sydney’s slump is poised to deepen, with the median peak-to-trough price fall estimated at 10 percent compared to 5 percent for the country as a whole. Still, the data conceals a considerable range of views: while three economists forecast falls of 15 percent in Sydney, two see declines of less than 7 percent.

Just three of the 14 economists who supplied a time frame believe prices in Sydney will begin to rise again in under two years. The rest predicted it would be at least two years before any price increases, and even then most suggested values would flatten after 2020 rather than rebound.

“Given regulators’ desire to see stability in the house price-to-income and debt-to-income ratios, we think it will be some time before house prices start to move again,” said Sally Auld, chief economist for Australia at JPMorgan Chase & Co.

The biggest single factor weighing on house prices is credit availability, according to the survey. Regulators have gradually tightened curbs on riskier loans, such as interest-only mortgages, while also enforcing stricter expense and debt verification for borrowers.

Read more: How Australia’s banks became addicted to property

The key takeaway from economists: the “fear of missing out” is now over. And while predictions are for a relatively soft landing -- the economy is continuing to grow with 50,900 jobs added in June -- it’s time for the housing market to adjust to a new normal.

Other Survey Comments:

• “While we recognize that APRA’s macro-prudential policies have been a key catalyst for the cooling of the housing market, the overarching pressures for house prices to move lower are more fundamental in nature. These include excess supply conditions” and “increasingly stretched valuations and declines in affordability”: QIC Ltd. chief economist Matthew Peter
• There are a “number of factors contributing to the cooling”; “Both households and investors have faced tighter lending standards over the past year, and we think there will be some additional tightening over the next year. In addition, households face a number of headwinds –- including weak wage growth, higher utilities prices and an already high debt burden”: National Australia Bank Ltd. chief economist Alan Oster
• “The outcome of the banking Royal Commission could lead to a larger correction in the market, if regulations are introduced -- and stringently enforced -- that force banks to significantly reduce the amount they lend”; “We are also monitoring the recent rise in wholesale funding costs for banks, which have ticked up in recent weeks as interest rates globally rise”: Sarah Hunter at Oxford Economics

To contact the reporters on this story: Emily Cadman in Sydney at ecadman2@bloomberg.net;Kimberley Verschuur in Sydney at kverschuur@bloomberg.net;Cynthia Li in Hong Kong at cli205@bloomberg.net

To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, ;Marcus Wright at mwright115@bloomberg.net, Chris Bourke, Peter Vercoe

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