You are here

Sydney home prices drop most in five years as regulation bites

[SYDNEY] Sydney home prices fell the most in five years in November as a regulatory crackdown forces banks to tighten lending and increase mortgage rates.

Dwelling values in Australia's largest city dropped 1.4 per cent from a month earlier, data from property researcher CoreLogic Inc showed on Tuesday. That was the biggest drop since December 2010 and the first decline since May.

Prices across the nation's capital cities dropped 1.5 per cent, with Melbourne leading with a 3.5 per cent decrease.

"The fact that mortgage rates have risen independently of the cash rate has, in all likelihood, become a contributor to the slowdown in housing market conditions," Tim Lawless, head of research at the firm, said in an e-mailed statement. "Tighter mortgage servicing criteria across the board and affordability constraints in the Sydney and Melbourne markets are also having an impact on market demand."

The drop in home prices is yet another indicator of the cooling Sydney property market after mortgage rates close to five-decade lows and buying by foreigners fueled a housing boom.

Sydney auction clearance rates, a measure of demand, have dropped for nine consecutive weeks and loans to investors climbed at the slowest pace in 14 months, while banks raised interest rates to protect themselves from the risks of an overheated market.

BUYERS HESITATING

Buyers are hesitating after home values soared 47 per cent in the three years to Oct 31, denting affordability, and a regulatory clampdown prompted banks to raise rates for owner- occupiers for the first time in five years.

Economists from Macquarie Group Ltd to Bank of America Merrill Lynch forecast a decline in prices over the next two years.

Sydney home prices are still up 12.8 per cent in the past 12 months. Values in New South Wales state, where Sydney is the capital, are expected to climb 2.2 per cent in 2016, a survey by National Australia Bank Ltd showed Monday.

The central bank, which last year called the housing market unbalanced, said in October that Australia's housing market could be starting to slow, while rapid home construction in some areas is creating an oversupply.

The banking regulator urged lenders in December last year to limit growth in investor mortgages to 10 per cent a year.

This year, it raised the capital the biggest lenders must hold against home loans.

Successful auctions in Sydney fell to 56.3 per cent, a three-year low, separate CoreLogic data showed on Monday.

A third of homes in the city were sold through an auction in the 12 months to Sept 30, according to Corelogic.

RBA DECISION

The decrease in prices would give the Reserve Bank of Australia room to drop rates, Lawless said.

The central bank is expected to leave its benchmark cash rate at a record low of 2 per cent on Tuesday, all 29 economist surveyed by Bloomberg said. RBA Governor Glenn Stevens said last week traders should "chill out" until February when policy makers will look at data again to decide on rates.

"While the Reserve Bank is likely to welcome a slowdown in the rate of home value appreciation, the overriding objective would be to avoid a significant downturn in the housing market, which would act as a weight on economic growth and potentially impact financial system stability," Mr Lawless said.

BLOOMBERG