House prices: What to expect in 2019

You’ve heard it through the year: house prices are falling. But what does this mean, exactly. And what can we expect in the New Year? Here, we break it down for you.

Looking at house prices in 2018

House prices are down 8.3 percent in June 2018 from June 2017. This is the largest decline since the global financial crisis.

According to CoreLogic, since the national index peaked twelve months ago, dwelling values have fallen 2.7 percent, which is not a crash. It’s a slower downturn than the housing downturn in 2012. The downturn in 2018 is strongest in Darwin, Perth, Sydney and Melbourne.

The fall is driven largely by the decline of foreign and local investors. Last year, the Australian Prudential Regulation Authority (APRA) implemented recommendations designed to correct the high growth in house prices from previous years. APRA’s main target was investors, and it looks like their adjustments have had the desired affect, with prices, particularly in capital cities, flattening.

Owner occupier home loans have declined in some parts of Australia. But it is not a uniform decline. There have been slightly more owner occupier home loans in South Australia and Queensland in recent months. Overall, first home buyers are borrowing more than before. Their loan size is, on average, growing.

“Given that first home buyers are likely to have less equity than upgraders, the fact that their loan size is still growing highlights that the credit tightening is very focused on investors,” says David Plank, head of ANZ economics.

Until now, the Reserve Bank of Australia (RBA) has kept the cash rate steady, to prevent decline into mortgage stress, and pave the path to inflation. With more loans being taken out than before, and house prices declining, the figure to watch for is the difference between household debt, and household income. In 2018, this discrepancy is bigger than previous years.

Looking forward to 2019

No one can say for certain how house prices will behave in 2019. Forecasters have mixed predictions.

The recent BIS Oxford Economics report suggests prices will stabilise in 2019, even predicting that the median house price will increase overall by 2019. Meanwhile, economists at NAB and ANZ suggest that the house price overall decline will continue into 2019, and stabilise in 2020. House price predictions vary state to state.

We don’t know either whether the RBA cash rate will increase in 2019. It depends on market factors, house prices, and wage growth. What we do know is that while interest rates remain low, homes are still being bought, so a credit crunch is at bay. The hope is that households pay off more of their debt, while rates are still at an all time low.