Australian dwelling values continued to trend lower last month, with the CoreLogic hedonic home value index recording its weakest month-on-month change in dwelling values since the Global Financial Crisis.
Core Logic has released their newest housing market update for December 2018.
National dwelling values slipped 0.7% lower the month, led by larger falls in Sydney and Melbourne where the pace of decline has accelerated.
Nationally, dwelling values are down 4.2% since peaking in October last year, reducing back to levels last seen in December 2016.
The downwards pressure on national dwelling values is largely confined to Sydney and Melbourne which together, comprise approximately 55% of the value of Australia`s housing asset class.
Since peaking in July last year, Sydney`s housing market is down 9.5% which is on track to eclipse the previous record peak-to-trough decline set during the last recession when values fell 9.6% between 1989 and 1991.
Melbourne dwelling values peaked four months later than Sydney, in November 2017, and have since fallen by 5.8% through to the end of November 2018.
Although the weaker housing market conditions in Sydney and Melbourne are under the spotlight, conditions across the Australian housing market are increasingly diverse.
Dwelling values are trending higher across five of the eight captal cities, albeit at a relatively slow pace compared with the previous surge in Dydney and Melbourne.
Hobart and Canberra continue to be the standouts for capital gain across the capital cities with values up 9.3% and 4.0% over the past twelve months.
Across the regional markets, the highest rates of growth can be found across regional Tasmania.
We can point to several factors that are influencing the downwards trend in Sydney and Melbourne while other regions are recoding growth or holding steady.
For starters, the tightening in finance conditions has been more pronounced across the investor segment of the market, where Sydney and Melbourne have recorded much higher concentrations of investment demand.
As investor activity reduces, the fall away in overall housing demand is sharper in Sydney and Melbourne.
Additionally, housing affordability constraints are more promounced in these markets and rental vields are substantially lower, indicating an imbalance between rental values and dwelling values.
Also, the ramp up in housing supply has been more pronounced in Sydney and Melbourne against interstate.
Aditionally, Sydney and Melbourne have been more affected by the reduction in foreign buying activity.
As a consequence of less market activity, advertised listings have surged higher, providing buyers with ample choice which provides for a strong negotiation position on price.
The rebalancing towards buyers over sellers in Sydney and Melbourne is clear across CoreLogic`s vendor metrics, with clearance rates tracking in the low 40% range while private treaty sales are showing substantially longer selling times and larger rates of discounting than they have have over recent years.
The weaker November housing reading comes amidst tightening credit conditions which are now spreading to the owner occupier segment of the market, coupled with a deterioration in consumer sentiment relating to housing market conditions.
The annual pace of credit growth slowed to 5.1% October, according to the latest data from the Reserve bank of Australia, which is the slowest rate of annual credit growth since October 2013.
While annual credit growth for investment purposes has trended down to new record lows for some time, owner occupier credit is now rising at the slowest annual rate since November 2015.
Credit growth has been winding down since early 2015 in with macro prudential policies, however, the recent trends have gathered some momentum after mortgage rates for owner accuoiers stepped 15 basis points higher through Septmeber and October with investor rates up 10 basis points.
The disincentive of higher mortgage rates has been compounded by tighter credit policies.
The disincetive of higher mortgage rates has been compounded by tighter credit policies and increased scrutiny of borrower overall debt levels, incomes and expenses.
Weaker consumer sentiment towards housing is also a factor in slowing the level of participation in the housing market.
Westpac`s House Price Expectations Index tracked to an equal record low over the past three months.
Such a weak level of sentiment is likely to be weighing on the decision making process for high commitment purchases such as purchasing a residential property.
Investor sentiment may be being weighed down by the potential for changes to taxation policies related to housing should there ba a change of government.
A negative gearing rollback looking to exclude established dwellings could diminish demand across the resale market with less investment demand for properties with low rental yields.