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HSBC Australia has published a revised forecast for Australian house prices after seeing a more abrupt slowdown in Sydney and Melbourne as speculations swirl over a possible credit squeeze.
In December 2017, HSBC Australia chief economist Paul Bloxham predicted that Sydney house prices would rise by between 2 per cent and 4 per cent in 2018, with Melbourne property prices to rise by 7 per cent to 9 per cent.
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However, this week Mr Bloxham revealed that he has cut his forecast significantly. HSBC now expects Sydney prices will fall by up to 5 per cent and Melbourne prices to dip by up to 3 per cent.
“The booms in Sydney and Melbourne housing prices have cooled in recent quarters, largely as expected, although for both cities, the slowdown has been more abrupt than we had forecast late last year,” Mr Bloxham said.
“For Sydney, housing prices have fallen by 4 per cent since their peak in mid-2017, although they are still 66 per cent above the mid-2012 trough. For Melbourne, housing prices are up 4 per cent over the past year, but this is a slowing from double-digit growth over the previous year (prices are up by 56 per cent since the mid-2012 trough).
“For the other large cities, housing price growth has continued to average low single-digit rates, and prices are, collectively, 13 per cent higher than the mid-2012 trough.”
The HSBC economist believes that the cooling has been driven by a collection of factors including a boost to supply, particularly of apartments; a tightening of prudential settings that has progressively occurred from early 2015 until recently; and a pullback in foreign demand, partly due to stricter Chinese capital controls as well as increased local taxes and constraints on local access to credit for foreign buyers.
“The recent short-end funding squeeze combined with the royal commission into banking have motivated some observers to suggest that Australia could see a credit squeeze which could weigh further on the housing market,” Mr Bloxham said.
“However, these factors have come into play at the same time that the prudential authority has eased up its restrictions on lending to investors and interest-only borrowers and, partly as a result, effective mortgage rates have actually fallen in recent months.”
As a result, HSBC expects a “soft landing” for the Australian housing market.
Mr Bloxham said: “In our view, housing prices are unlikely to fall sharply given continued low interest rates and strong employment growth. Although household debt levels are high, any misallocation of lending does not appear to be widespread and the national housing market is not oversupplied.
“We doubt that the cooling in the housing market will weigh significantly on the consumer but acknowledge that high household debt would make the economy more vulnerable if there was a negative economic shock.”
