Last week, Domain’s June quarter house price results reported that Sydney’s Inner West had borne the brunt of the city’s steepest annual drop in property prices since the Global Financial Crisis, with several suburbs recording double-digit price declines:
This came on the back of steep falls in auction clearance rates across the Western Sydney mortgage belt, according to CoreLogic:
Late last week, The AFR reported that real estate agency, LJ Hooker, is trying to coax vendors in Western Sydney to sell now before prices plunge further:
LJ Hooker’s Peter Tannous has his work cut out for him in Sydney’s west, where he is now either coaxing desperate homeowners to close the sale of their properties quickly before the market dips again or consoling those who have sold at a loss.
…this week Mr Tannous sold a two-bedroom unit for a 30-year-old homeowner who “couldn’t afford his mortgage” any more with a newborn arriving.
The apartment on O’Neill Street in Guildford sold for $450,000 even though the owner wanted $489,000. He bought the home for nearly $483,000 at the peak of the market in 2015.
“The royal commission has done the west no favours as banks tighten their lending criteria and focus more now than they ever did on serviceability,” he said…
Unfortunately, Mr Tannous and his colleague, LJ Hooker Merrylands principal John Contos have plenty more similar properties to sell especially for their investor clients facing pressure from rising rental vacancy rates and falling rents in Sydney…
Yesterday, 17 Sydney suburbs – primarily in the city’s west – were declared “danger” markets due to the risk of prices falling long after a home is purchased, causing buyers to fall into ‘negative equity’:
The majority of the no-go zones for property buyers were in the Greater Parramatta area, Sydney Olympic Park area and a belt of suburbs stretching south of the Sydney CBD to the airport.
The suburbs included the Parramatta CBD, Ermington, Harris Park, Homebush, Waterloo, Zetland, Carlingford and Wolli Creek, among others.
These were areas where a high supply of new apartment projects and falling property sales meant price falls were likely to continue for some time, according to the research by Hotspotting.com.au…
Sales volumes were identified as a strong predictor of future rises and falls in prices — historically prices grow following an increase in sales and fall when sales volumes have been declining, according to the index.
“The Sydney metropolitan area has over 700 suburbs, but we can find only five with a growth trajectory in terms of sales activity,” the report said…
The 17 “danger” markets included: Wolli Creek, Wentworth Point, Waterloo, Rhodes, Parramatta, Mascot, Homebush, Homebush West, Haymarket, Harris Park, Forest Lodge, Ermington, Epping, Chippendale, Carlingford, Breakfast Point and Zetland.
The broader Sydney data also shows sales volumes and prices falling off a cliff:
Whereas investor finance – which has a similarly strong correlation with prices – is also falling sharply:
We also know that there are stiff headwinds facing Australia’s housing market over the next few years, including:
- The massive roll-over of interest-only mortgages into principle and interest (raising repayments by an average of 35%);
- Tightening lending standards arising from the banking Royal Commission;
- Rising bank funding costs; and
- Labor’s negative gearing and capital gains tax reforms should it win the next election.
These factors combined will continue to weigh on housing values and make investing in property a particularly risky proposition, especially in Sydney, where values are most over-valued, investors are most dominant, and auction clearance rates, prices, sales volumes, and investor finance are already falling.
The poison of negative mortgage equity will continue to spread across Sydney.
