Weak sentiment will cause house prices to continue to drift sideways to lower over the coming six to 12 months, according to ANZ, which envisages a rebound in economic growth in 2012 and 2013 to limit the price fallout.
Housing market sentiment continued to soften and prices drifted lower in most capital cities, according to the latest ANZ housing report.
Declining auction clearance rates and rising days on market reflected a mis-match between buyer and vendor expectations.
However, the absence of wide-scale forced selling had, to date, protected measured price outcomes amidst a turbulent global economic environment.
The bank notes Sydney house prices had been the most resilient across the capital cities, with prices edging 0.3% higher over the year to August, compared with a 3.2% decline in the national capital city average.
ANZ suggests flattening employment growth and rising unemployment present clear risks to loan delinquencies and house prices across Australia.
It considers interest rates to be at mildly restrictive levels.
“The housing market has also been hit with a behavioural shift towards increased household caution,” notes Paul Braddick, the bank’s head of property research.
The report, compiled in conjunction with ANZ economists David Cannington and Dylan Eades, says the combined headwinds had resulted in falls in house prices (-1.9% year on year across capital cities to June 2011) and a decline in new building approvals, which fell 9% in the year to August 2011.
The weak housing market sentiment had also weighed on development activity, with current building approvals equivalent to an annual completions rate of just 143,000, well below the bank’s estimate of underlying housing demand of 190,000 for 2011-12.
But the bank expects the continuing deterioration in the national housing shortage to add further downward pressure on rental vacancies and lead to increased rents.
“Through 2011-12, steady population growth and weak home completions will add further tightness to the housing market,” it says.
“Near record low vacancy rates will eventually drive a renewed acceleration in rents that should encourage investors and first home buyers back into the property market.
“Assuming domestic economic conditions remain stable enough to support household finances, the national housing market should continue to simmer, avoiding the recent boilover experienced by many other developed economies through the global financial crisis,” it notes.