Australian home price fall at the slowest pace in a year

• Australian home prices fell at the slowest pace in a year during May, according to CoreLogic's Home Value Index.

• The moderation reflects slower price falls in Sydney and Melbourne, offsetting a broadening in the downturn to other parts of the country.

• CoreLogic says the outlook for the housing market is looking more positive now than it was before federal election.

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Australian home price falls are getting smaller, continuing the theme seen since the beginning of the year.

According to CoreLogic's Home Value Index, Australia's median home price fell 0.4% to $519,537 in May, the smallest monthly decline in a year.

Median prices declined by 0.5% in April, and had been as large as 1% at the start of 2019.

Tim Lawless, head of research at CoreLogic, said the continued moderation in the pace of nationwide price falls reflected smaller declines in Sydney and Melbourne, Australia's largest and most expensive housing markets, offsetting a broadening in the housing downturn to other parts of the country.

"This improvement is primarily being driven by a slower rate of decline in Sydney and Melbourne where housing values were previously falling at the fastest rate of any capital city," Lawless said following the release of the May update.

"Sydney values were 0.5% lower over the month while Melbourne values were 0.3% lower, the smallest decline in values across both cities since March last year.

“In other cities, where housing market conditions have generally been more resilient to a downturn, the trend is opposite.”

Sydney and Melbourne contain around 40% of all Australian dwellings and around 55% of the nation’s entire housing wealth, meaning price changes in these capitals are often influential on nationwide price measures.

This table from CoreLogic shows the movement in median prices across individual capital cities both over the past month, quarter, year-to-date and from a year earlier.

Image: CoreLogic

Despite the continued moderation in the pace of price falls nationally, median values still declined 1.5% over the past three months in average weighed terms, leaving the drop over the past year at 7.3%.

In the capitals, the decline over the past year was even larger at 8.4%, near triple the 3% fall seen in regional areas over the same period.

Since peaking in October 2017, national dwelling values have now fallen 8.2%. Capital city valuations have declined 10.1%, significantly greater than the 3% drop in regional areas.

Like a number of other forecasters, CoreLogic says the outlook for the housing market is looking more positive now than it was before federal election.

“The federal election outcome has removed the uncertainty surrounding taxation
reform which should see an improved level of confidence amongst home owners and prospective buyers, particularly investors," Lawless said.

“We now have some certainty around the initiatives announced in the federal budget, a consistent commission structure for mortgage brokers, and the eventual stimulus for first home buyers in the form of a federal government deposit guarantee."

Along with a likely reduction in variable mortgage rates given widespread expectations that the Reserve Bank of Australia (RBA) will cut Australia's cash rate this week, coupled with a proposed easing in mortgage lending standards from Australia's banking regulator, APRA, announced last week, Lawless says this should help to support home market conditions in the period ahead.

However, despite those positives for property prices, Lawless says that a "variety of headwinds are still at play, especially in the credit space".

"Although interest rates and serviceability tests are set to reduce, lenders are continuing to scrutinise incomes and expenses much more intensely,' he says.

"Comprehensive credit reporting is providing lenders with greater visibility around borrower finances and overall debt levels, and progressively lenders are reducing their exposure to borrowers with high debt levels relative to their income."

He also flagged the risk of slower economic growth in Australia and higher unemployment, two factors that largely explain why the RBA is likely to cut official interest rates.

"Policymakers are becoming increasingly concerned about prospects for economic growth and stubbornly low inflation," Lawless says.

"The labour market is seeing some cracks emerge and global trade tensions remain high. If the economy continues to lose momentum, we could see further weakening in labour markets and a continuation of weak wages growth."

In the unlikely event that prices start to lift sharply as attempts to stimulate the market are rolled out, Lawless said there's also a risk these measures may be curtailed or even stopped.

"If we see housing values surging higher on the back increased stimulus measures, we may see macroprudential or other policy levers being pulled in an effort to provide house price stability while at the same time supporting an improvement in economic activity," he said.