Sydney auction clearance rates in some areas have hit their lowest levels since the global financial crisis in 2008-09 according to one property analyst, who says a housing crash could be on the cards if the market continues at current levels.
Louis Christopher of SQM Research spoke to Business Breakfast in the wake of sliding property prices and clearance rates around the country.
The last time clearance rates were this low prior to the GFC was in 2004, when the then Labor government introduced vendor stamp duty, and during the recession of 1990, Christoper said.
“When we see those types of clearance rates, it come with very steep declines in dwelling prices. We are already seeing that now.
“If we continue to see that, it would mean we would be getting price declines in the order of about three per cent per quarter in Sydney. Which I think translates into a crash.”
Stamp duty savings
The NSW state government has announced stamp duty brackets will be indexed and will save households about $500 on average property transactions.
Stamp duty in NSW hasn’t changed in more than three decades despite house prices rising by an estimated 1000 per cent during that same period.
Christopher calls the changes insignificant and says it won’t make a difference to home buyers.
“Let’s consider an average million dollar property in Sydney.
“So the stamp duty on that is $40,000, or just over $40,000. We are saving 500 bucks on $40,000.
“I mean this is almost insulting for the home buyer.”
Is it a buyers market?
First home buyers outnumber investors in the market but overall buyers in the market are well and truly down.
“That’s the reason we are having a downturn, there is less demand out there. For first home buyers right now, its tricky,” Christopher said.
“Lets consider a first home buyer who bought in Sydney in 2017 and they put down a 10 per cent deposit, they’re pretty much under water right now. Because the market has fallen by over 10 per cent.”
RBA to the rescue?
If we want to stop house price declines, we need some intervention, Christopher says.
“I think the probabilities must be increasing that the RBA will step in, whether its in the form of cutting interest rates next year, or perhaps just tapping on APRA’s shoulders and saying maybe we need to loosen things up when it comes to lending standards.”
“How do you manufacture a slowdown without it turning into something far more nasty? That’s very tricky for policy makers.”
Easy credit means Sydney and Melbourne property could be significantly overvalued, he said.
Christopher says a key risk for home buyers is banks moving their lending rates out of step with the RBA, which will accelerate declines.
He also believes possible negative gearing repeals by the Labor government will also keep investors away and do nothing to improve affordability.
“Why are they doing it in the first place? Because they want lower house prices. They want to improve affordability, that’s their stated agenda.
“But will they actually do it during a pretty large downturn in Sydney and Melbourne? I think that’s one thing Labor needs to consider.
“The reality is that if we do have a crash in the Sydney and Melbourne housing markets, the chances of a recession in this country have got to have increased.”