CoreLogic is reporting that Sydney and Melbourne house prices fell 1.8% and 1.5% respectively in December 2018.
According to the CoreLogic’s December home value index results, national dwelling values were down 2.3% over the December quarter. This was mostly driven by the quarterly 3.9% fall in Sydney and the 3.2% fall in Melbourne.
Other capital city prices didn’t fare well in December either. Perth prices dropped 1%, Darwin prices dropped 1.8%, Brisbane house prices fell 0.2% and Canberra prices were flat. Only Adelaide (up 0.2%) and Hobart (up 0.4%) registered gains.
CoreLogic said that Sydney values are now 11.1% lower relative to the July 2017 peak and Melbourne values are down 7.2% since peaking in November 2017. Sydney values were back to where they were in August 2016, while Melbourne values are back to February 2017 levels.
Why Sydney house prices are Falling
Real estate agents and developers would (and do) pin the blame for the declines on negative news stories by the media and the Royal Commission.
However, the media are only reporting what is happening out there, so I don’t think that’s the issue, unless they are suggesting the declines should be hidden from potential buyers.
The Royal Commission was set up to identify wrongdoing by banks and other financial businesses. It did find a number of things that they were doing wrong.
One of the main talking points was the lack of financial scrutiny on potential borrowers by banks like Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC).
Has XYZ borrower reported their actual income and expenses accurately? Can the borrower afford the loan if interest rates were a bit higher? Banks are now asking these questions and digging into the borrower’s finances, which only seems reasonable.
To me it seems the banks are now taking the view that they need to be careful giving out these huge loans for 20 or 30 years.
Other things to Consider
There’s also a long list of other reasons why house prices could be falling: house prices are still unaffordable, interest rates are rising, Chinese buyers are finding it harder to get money out of China, Australian federal and state governments have made it harder for foreigners to buy property, negative gearing may be removed for Australian investors and there is an oversupply of apartments in some cities.
Chief economist of AMP Limited (ASX: AMP), Shane Oliver, says 20% falls in Melbourne and Sydney could happen.
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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).