Confidence in the housing market is collapsing in Australia’s biggest states and prices will continue to fall for another two years, according to a survey of property professionals.
The NAB residential property index also recorded a sharp fall in sentiment about the prospects for the market for the second quarter in a row and is down 15 points to a seven-year low of –9 points, its first negative read since mid-2012.
A day after the IMF downgraded its forecast for the Australian economy amid growing fears of a US-China trade war, the NAB survey paints a gloomy outlook for the once soaring property market.
The fall in sentiment was driven by big falls in New South Wales and Victoria, NAB said, offsetting gains in the only state recording a positive outlook – Queensland.
Confidence in the market was “collapsing”, NAB said, again pulled down mainly by the big two states where property professionals scaled back their outlook for prices. This was especially acute in Victoria where house price falls are now tipped to be much bigger.
In Victoria, professionals’ confidence slipped 24 points to –5 (its lowest since 2012), while in NSW confidence hit a new low for the survey, falling 16 points to –25.
NAB’s survey concluded that house prices would continue to “correct” over the next 18 to 24 months, with Sydney falling around 10% peak to trough and Melbourne 8%.
However, NAB said it would not be a “credit crunch event” leading to a collapse in prices. “Overall, we see this as a healthy correction which will help offset some of the risk in the household sector against a backdrop of a relatively healthy economy and labour market,” it said. “Our central scenario does not include a credit crunch event leading to disorderly falls in house prices.”
And a more optimistic view was backed up by the Westpac/Melbourne Institute survey of consumer sentiment index on Wednesday which rose by 1% to 101.5 in October. The sentiment index is in line with its long-term average of 101.5. A reading above 100 denotes optimism.
The boom in Australian housing sales to foreign investors has also run its course, the survey said. Overseas share of total sales has fallen to a seven-year low of 8.1% in new markets and a survey low of 4.1% in established markets.
Market professionals told NAB that access to credit was now much more difficult than it had been for years and many were concerned about the impact of rising interest rates on demand.
The Australian share market was flat on Wednesday lunchtime after hitting a four-month low on Tuesday.