Australian house prices fell in May for the first time in 18 months, as a 'perfect storm' of conditions dampened demand.
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Australian housing affordability worsens
Low interest rates are fueling a high demand for housing despite tighter lending rules, says St. George Bank Senior Economist Janu Chan.
Home values in Australia's state and territory capitals fell 1.1 per cent last month from April, according to CoreLogic data released Thursday. Still, prices across the combined capitals were 8.3 per cent higher than a year ago.
The monthly decline comes after regulators tightened lending curbs amid fears of a housing bubble, and the nation's banks raised interest rates -- especially for interest-only loans which are popular with property investors seeking to take advantage of tax breaks.
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"It appears that a perfect storm of factors have dented confidence in housing, and led to some heat coming out of the market," said St George senior economist Janu Chan.
"Nonetheless, we do not expect widespread, large scale price falls given that interest rates are expected to remain low and absent a spike in unemployment."
CoreLogic's Head of Research Cameron Kusher also cautioned against calling an end to the property boom.
"We haven't called the peak of the market yet. We want to see more data, we don't want to jump in too early," said Cameron Kusher, head of research Australia at CoreLogic.
"The market has lost momentum, particularly in Sydney and Melbourne where affordability constraints are more evident and investors have comprised a larger proportion of housing demand," said CoreLogic's Director of Research Tim Lawless.
Lawless said he expects investor demand for property to slow, but not stall as potential returns from other investments such as cash and bonds remain low. Australia's record low interest rates have been a key factor in driving demand for buy-to-let properties.
Citigroup Inc. chief economist Willem Buiter yesterday said Australia is experiencing a "spectacular housing bubble" which needs to be addressed with tougher regulatory measures.
"It had better be focused on immediately, to try and tether a soft housing landing," Buiter said. "Clearly if these things are not managed well they can be a trigger for a cyclical downturn."
The monthly drop was led by declines of 1.3 per cent in Sydney and 1.7 per cent in Melbourne, the two cities where prices have risen the fastest. In Sydney, prices have gained 75 per cent in the past five years, ranking it behind only Hong Kong as the world's least affordable housing market.
Bloomberg