Why home prices are unlikely to rebound this year

By Gerv Tacadena

A home price rebound is unlikely this year.

Recent figures from industry experts and observers point out to the softening of Australia's housing market. For most of these experts, the fall in prices would likely stabilise immediately this year – but there are things that would likely exert more pressure on prices.

In a commentary on the Property Observer, ANZ senior economist Daniel Gradwell said the housing market weakness has lasted longer than expected, and it would continue to do so due to additional headwinds.

"There are still a number of headwinds that are likely to weigh on prices through the remainder of 2018, including the shift away from interest-only loans, and the ongoing tightening of credit availability," he explained.

However, the current price downturn is a result of a different set of market factors, unlike the previous price declines. For instance, price drops in the past have been attributed to an increase in mortgage rates. This is not the case this time, as interest rates remained historically low.

Instead, Gradwell pointed at credit availability and costs as the driver of price declines.

"Banks have responded to regulatory requirements by implementing a combination of lower loan-to-income ratios, lowering estimates of rental income from investment properties and raising expense estimates," the economist said.

Even the Reserve Bank of Australia noted that further credit tightening is possible and this could further pressure house prices.

"But the impact of this had faded by the end of the year, with the auction clearance rate starting to rise and the pace of decline in house prices easing considerably. This indicates to us that if the fundamentals of the economy remain supportive the impact of credit tightening on house prices is not permanent," Gradwell said.

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