Six charts that show what killed Australia’s property boom – The Sydney Morning Herald

These six charts show how the downturn is playing out:

They were the nation's hottest property markets, now Sydney and Melbourne are the cities with the biggest price declines.

They were the nation’s hottest property markets, now Sydney and Melbourne are the cities with the biggest price declines.Credit:Bloomberg

While the plunge in prices may be welcome news to first-home buyers who feared they had been priced out of the market, the past two months have seen a marked drop in loans to owner-occupiers, suggesting people are happy to stay on the sidelines until the market has settled.

It’s also got much harder to get a home loan. The big four banks have tightened lending criteria and introduced stricter expense verification, lengthening the time it takes to get approval and reducing the maximum amount that can be borrowed. Analysts at UBS believe more credit tightening is almost inevitable, and the outlook for banks hasn’t looked as challenging since at least 2008.

Investors are happy to stay on the sidelines until the dust settles.

Investors are happy to stay on the sidelines until the dust settles.Credit:Bloomberg

That’s coming on top of a steep decrease in investor credit after lenders responded to a regulatory crackdown on risky advances by tightening loan criteria, and property stopped being a one-way bet to riches.

It's gotten harder getting a loan.

It’s gotten harder getting a loan.Credit:Bloomberg

At this rate, the downturn is on track to become the largest peak-to-trough decline in home prices in more than 30 years. The biggest drop was in 1982 when Australia, along with most of the developed world, was in the grip of a crippling recession. UBS said this week that house prices could drop 30 per cent in a “deep recession” scenario.

Property is no longer the sure-fire way to riches.

Property is no longer the sure-fire way to riches.Credit:Bloomberg

As prices decline, fear of missing out has turned to fear of paying too much. Clearance rates at Sydney auctions in November plunged to 42 per cent, near levels last seen during the GFC. At the height of the boom, weekly auction clearance rates regularly topped 75 per cent.

Gone are reports of houses selling for hundreds of thousands of dollars above the reserve price. Instead, auctioneers are struggling to get an opening bid. While sellers are starting to lower their price expectations, buyers are adjusting theirs even faster.

While sellers are starting to lower their price expectations, buyers are adjusting theirs even faster.

While sellers are starting to lower their price expectations, buyers are adjusting theirs even faster.Credit:Bloomberg

With the economy still humming along, the number of forced sellers is low. However, the stand-off over prices means houses are now taking an average of almost two weeks longer to sell than at the start of the year. That’s creating a logjam of unsold homes — the number of total listings in Sydney is 19 per cent higher than last year according to CoreLogic — further reducing pressure on buyers to make a quick decision.

Still, the boom was so explosive, prices are only back to where they were a few years ago, meaning few borrowers are underwater. With the average house in Sydney still fetching more than $1 million and wages stagnating, the city’s status as the world’s second-least affordable housing market isn’t under serious pressure.

Despite the alarming price declines the market has just lost the gains of the past two years.

Despite the alarming price declines the market has just lost the gains of the past two years.Credit:Bloomberg

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