Sydney home prices record worst quarter in 4 years

Sydney

SYDNEY home prices fell for the second consecutive month and recorded the worst quarter in four years as a regulatory crackdown pushed up mortgage rates and dented affordability amid record prices.

Home values in Australia's largest city dropped 1.2 per cent in December from a month earlier following a 1.4 per cent decline in the previous month, data from property researcher CoreLogic Inc showed on Monday. This is the first time since May 2013 that Sydney dwelling values have dropped for two straight months.

Prices in Australia's capital cities have jumped almost 55 per cent in the past seven years as mortgage rates dropped to five-decade lows and foreigners, including from China, accelerated their purchases of local homes.

The gain was led by Sydney where the median home value has almost doubled since 2008. In another sign of a cooling property market in Australia's most populous city, Sydney home prices fell 2.3 per cent in the quarter ended Dec 31, making it the weakest performing capital city, CoreLogic said in a statement.

"Throughout 2016, we may see further moderate value declines in Sydney and Melbourne," Tim Lawless, head of research at CoreLogic, said in the statement. "However, considering population growth has remained strong in these areas and economic conditions are very healthy in these cities, we would be surprised if dwelling values fell materially before conditions start to level."

Melbourne prices dropped 1.9 per cent in the quarter despite a 1 per cent increase last month, according to the data. Values dropped 1.4 per cent on average in the quarter across all the capital cities with only Brisbane and Adelaide bucking the trend.

Prices climbed 7.8 per cent across the country in 2015, with Sydney leading with an 11.5 per cent gain on the back of a surge in the first 10 months of 2015, the data show.

The trend reversed after banks raised interest rates for landlords for the first time in five years in July and for owner occupiers in November following a regulatory directive to limit growth in investor mortgages to 10 per cent a year and increase the capital the lenders hold against mortgages.

Economists from Macquarie Group to Bank of America Merrill Lynch forecast a decline in prices over the next two years. Australia & New Zealand Banking Group said in a note on Nov 30 that "strong underlying demand" is likely to contain any price declines in the major capital cities to less than 10 per cent in the absence of an economic downturn.

Australian investor mortgage growth fell to a 17-month low of 9.1 per cent in the 12 months to Nov 30, Reserve Bank of Australia data showed recently.

Sydney's median dwelling price stood at A$800,000 (S$820,659) in December compared with A$610,000 for Melbourne and A$595,000 for the combined capital cities. BLOOMBERG