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7 signs Australia’s housing boom is ending

By Emily Cadman, Bloomberg 

Tougher credit rules, increased supply and subdued wage growth are combining to put an end to Australia’s long housing boom.

The downturn is most obvious in Sydney, where average home prices were down 3.4 percent in April from a year earlier. The city was previously the epicenter of the boom — as recently as a year ago, Sydney prices were increasing at an annual pace of 16 percent.

Also read: The city suburbs with house prices under $500,000

Away from the urban centers and in smaller cities, where homes are more affordable without the need for large loans, prices are still rising or seeing smaller falls.

Here are seven charts showing how the end of the boom is playing out:

The biggest factor weighing on the Sydney market is tighter credit. Under pressure from regulators, banks have been cutting back on the riskiest loans, such as interest-only and investor mortgages.

The proportion of mortgage finance in the state of New South Wales taken up by investors, as opposed to owner-occupiers, has dropped to 40 percent from more than 50 percent two years ago. Fewer interest-only loans — which are cheaper in the early years because borrowers don’t repay principal –have put Sydney home purchases out of reach for many potential buyers in a city where prices rose 83 percent between 2010 and mid-2017.

Also read: Aussie housing costs are actually the same as in 1993, but renters still struggle

Meanwhile, high-income owner-occupiers are less able to bid up prices due to tighter checks on their real spending levels as part of the mortgage approval process. Previously they could rely on benchmarks which were unrealistically low for richer households with commitments such as private school fees.

There’s little relief in sight from household income. Wage growth in Australia has been stagnant for about five years.

Another gauge of the Sydney market slowdown comes from the steady decline in properties that successfully sell at auction, a popular way of marketing houses in Australia. After dropping through 2017, this year has got off to a weak start.

Also read: Only 1 in 2 Sydney homes sell at auction as price crash warning lights flash red

A growing supply of homes is also pressuring prices. As of the end of May, listings in Sydney are up 23 percent on a year ago and 4.6 percent across the country, according to data from CoreLogic.

Additionally, a raft of new apartments which got planning approval during the boom times of 2014 to 2016 is yet to hit the market. Many are being built with investor sales in mind — a category of buyers which has been thinned by the banks’ clampdown on riskier borrowing.

Also read: Only 1 in 2 Sydney homes sell at auction as price crash warning lights flash red

To be sure, it’s not all doom and gloom. While prices are down in Sydney, the declines so far have been smaller than in other downturns. Optimists point to Australia’s population growth and record low interest rates as reasons to expect a soft landing. Others suggest that the current downturn is only getting started, noting that the market retreat after 2003 lasted for more than two years.

At the ultra-top end of the market, it’s business as usual. Last weekend, an eight-bedroom waterfront mansion in Sydney, complete with a private jetty and butler’s pantry, reportedly sold for about A$20 million ($15 million). That still compares well with Shanghai or Hong Kong, where an equivalent sum would buy a luxury three-bedroom apartment.