Home values of nation’s richest falling twice as fast as poorest

by

Duncan Hughes

Multimillion-dollar property values in the nation’s glitziest postcodes are falling twice as fast as low-end housing, analysis by investment bank Morgan Stanley shows.

The nation’s richest real estate has been sliding at an annual rate of about 8 per cent, compared to 4 per cent for properties in the bottom, or fourth quartile, its analysis shows.

That means property prices in Point Piper, home of the former prime minister Malcolm Turnbull where the median price is $15 million, could be falling by about $1.2 million a year, or $23,000 a week.

Rising interest rates, political uncertainty, stagnant incomes and increasing investor nervousness about the opposition Labor Party’s proposed changes to negative gearing are contributing to a sharp downturn in lower priced property too, it shows.

Daniel Blake, equity strategist, said there is no evidence of any economic, policy or banking changes that might stop the fall in property prices and loan approvals. Regulatory changes are considered a further headwind.

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“Given the subdued outlook for credit demand and supply, the still elevated level of prices and indebted households, it looks unlikely that the market will trough in the immediate future,” the bank’s report concludes, adding the underlying weakness is “entrenched”.

Property prices in Sydney fell by about 5.6 per cent in the year to August, Melbourne’s fall accelerated and even former hotspots, like Hobart, are slipping, according to a report published by CoreLogic earlier this week.

Weaker investor demand

Perth’s quarterly pace of decline worsened to 1.9 per cent from 1.5 per cent. Brisbane values slipped 0.2 per cent after ticking up 0.1 per cent a month earlier, the report shows.

Morgan Stanley’s analysis shows that Melbourne’s property prices have fallen by 7.6 per cent in the past three months, the nation’s highest. Sydney’s fell by 7.2 per cent.

The bank’s six criteria for assessing market outlook are all negative, including credit supply, rental conditions, mortgage serviceability and credit supply.

The overall situation has deteriorated since April when it warned conditions in the residential market were the worst in 30 years, which is when Bob Hawke was prime minister and the median property price for a Sydney house was $141,000.

Investor demand, weakened by tighter credit supply and weaker price and rental outlooks, is driving the downturn.

The value of new investor lending is 18 per cent below its level a year ago and the stock of debt is growing around 1.5 per cent year-on-year, the slowest pace on record.

Owner-occupier sentiment is “more robust, so far”, with credit growth slowing to 7.6 per cent and the number of people who think it is a good time to buy rising in Melbourne and Sydney.

But that could be influenced by recent variable rate rises by Westpac and Suncorp, with the expectation that others are likely to follow.

House prices fell another four basis points in August to be down nearly 3 per cent for the year, according to the bank.

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