Sydney prices to likely fall: SQM's revised 2018 forecast

SQM Research has revised down its forecasts for 2018.

It follows recent market evidence that dwelling prices have been falling in Sydney and to a lesser extent in, Melbourne this year.

Indicators such as auction clearance rates, total aggregated property listings and asking prices suggest further deterioration in market conditions in recent weeks, the property research company advised.  

As a result, SQM Research has had to revise down its initial forecasts in five of the capital cities compared to its forecast back in October 2017 via its annual Housing Boom and Bust report.

Click here to enlarge.

The revisions came with the follow assumptions/Notes

• No further APRA action taken in 2018.
• Cash rate remains on hold at 1.5%.
• The recent APRA announcement of lifting the 10% investment credit growth limit (26 April 2018) is likely to have an initial muted impact upon the market.
• June quarter – seasonally the strongest quarter in the year, is likely to record a fall in dwelling prices.

Sydney

SQM Research believes the Sydney housing market may now record price declines for the year or at best, very small price gains, assuming property investor do come back to the market at a slow rate following the recent APRA announcement. The base case forecast has been downgraded to -4% to 0% dwelling price changes for 2018. 

Recent auction results suggest that market activity has further deteriorated during April. 

Actual auction clearance rates have ranged in the low to mid 50% range with the last weekend of April suggesting that the clearance rate may have dropped further to below 50%. These are levels which, historical, have translated into price falls.

Sydney’s Inner West, Lower North Shore and Eastern suburbs are recording higher clearance rates (average between 60-64%) suggesting the top end of Sydney’s residential housing market ($2.5m+) is holding.

Total Sydney listings year on year have now risen by over 34% and are now at similar levels recorded in 2011 - a point in time when Sydney dwelling prices fell 3% for the year. SQM Research expects listings to rise further in the current month of May.

Days on market for existing listings has increased to 118 days in April 2018 from 107 days recorded in April 2017. This data is backed by agents on the ground whom are reporting in unison that many properties are not moving. 

Asking prices for April fell 1.1% for houses and 0.6% for units – this suggests a degree of capitulation by property sellers which will likely mean a negative pricing result for the June Quarter.

Given the loosening of investment property credit growth restriction, there may be a response from Sydney investors. However, given other housing credit restrictions it is unlikely that the response will be significant. 

SQM noted that on a nominal aggregate incomes to dwelling prices measure, "the Sydney market is approximately 45% overvalued."

SQM Research expects this overvaluation to wind down somewhat over an extended period of time. 

SQM expects Melbourne to record a flat market, with risks on the downside that prices could fall for the year.

Click to enlarge the previous forecast.

SQM's Louis Christoper tweeted this morning that the "main reason for the forecast range is a degree of uncertainty at our end about the impact of the recent lifting of investment property credit growth limits by APRA."

"Our expecation is a muted response from property investors," he advised.