Have property prices reached the mountaintop?

There has been significant discussion of late, about whether Sydney house prices have finally peaked.

I remember meeting with one of the large real estate media companies in November 2015, where they called the peak of the market as being September 2015. With hindsight we now know they were wrong.

So are we at the top of the mountain?

Property Researcher Core Logic’s (the company that records house sale prices) data shows that Australia’s largest housing market is cooling, with Sydney values down 0.04 percent in April and 1.3 per cent in May. These figures whilst small have greater significance when compared to the sustained growth that preceded them. Sydney home prices are still up around 15 per cent in the past year.

Economic commentators, believe this cooling is partly a consequence of banking regulator APRA strengthening its policies on lending in March. One of the outcomes has been banks reducing new lending to customers taking out interest-only loans. The crackdown has prompted banks to raise interest rates on interest-only loans and increase the minimum deposit required for customers borrowing on an interest-only basis. This is how banks will limit new interest-only lending to 30 per cent of loan approvals as per the APRA restrictions.

Another key indicator is Westpac and Melbourne Institute’s consumer sentiment index for June 2017. The index was recorded at 96.2 points which was the lowest monthly reading for the index since April 2016.

When the Consumer Sentiment Index is below 100 points it means that consumers are more pessimistic than optimistic. The index has now been below 100 points for seven consecutive months which is the longest run of negative sentiment since January 2015. Whilst there has been no movement in the RBA cash rate since August last year, many lenders have been increasing mortgage rates and it is likely that this is feeding into the decline of consumer sentiment.

Other signs commentators refer to, are softening auction clearance rates, higher borrowing costs for investors and an increasing number of properties going to market.

Time will tell, but it appears that when we look back at the Sydney real estate prices achieved in 2017, we will say, as Martin Luther King did in his 1968 speech the night before his assination “ I’ve been to the Mountaintop”

Reno Miltiades
Coppernest Property Group

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