Sydney Housing Slump Deepens as Prices Drop Most Since 1980s

© Bloomberg. Newly constructed houses stand in the suburb of Putney Hill in Sydney, Australia, on Sunday, Jan. 8, 2017. Photographer: Brendon Thorne/Bloomberg© Bloomberg. Newly constructed houses stand in the suburb of Putney Hill in Sydney, Australia, on Sunday, Jan. 8, 2017. Photographer: Brendon Thorne/Bloomberg

(Bloomberg) — The downturn in Sydney’s property market is set to deepen this year as tighter lending standards and the worst slump in values since the late 1980s cause nervous buyers to sit on the sidelines.

Average Sydney home values have fallen 11.1 percent since their 2017 peak, according to CoreLogic Inc. data released Wednesday — surpassing the 9.6 percent top-to-bottom decline when Australia was on the cusp of entering its last recession.

Nationwide, dwelling values declined 4.8 percent in 2018, marking the weakest housing market conditions since 2008, CoreLogic said.

“Access to finance is likely to remain the most significant barrier to an improvement in housing market conditions in 2019,” CoreLogic’s head of research Tim Lawless said. Weak consumer sentiment toward the property market is “likely to continue to dampen housing demand.”

Sydney was the epicenter of a five-year boom and prices are still about 60 percent higher than they were in 2012. That means few existing homeowners are underwater, and the major banks — which dominate about 80 percent of the mortgage market — have plenty of buffer before losses would bite.

Yet with some economists tipping a further 10 percent fall in prices in Australia’s most populous city, policy makers are growing nervous. The central bank is worried that a prolonged downturn will drag on consumption and warned last month that the major banks risked amplifying the slump if they all pulled back credit at the same time.

Australia’s prudential regulator last month announced it was dropping a cap on interest-only mortgage lending, loosening credit curbs that have contributed to the downturn. Across the country, house prices have now fallen 5.2 percent from their October 2017 peak.

Capital Economics Ltd. thinks national prices “will eventually fall by 12 percent, rendering the current downturn the longest and deepest on record,” said Marcel Thieliant, senior Australia and New Zealand economist. “That will result in weaker dwellings investment and consumer spending as households respond to falling housing wealth by ramping up savings.”

Sydney led last year’s price declines, with values dropping 8.9 percent, followed by a 7 percent fall in Melbourne, according to CoreLogic.

With elections expected in May, and the main opposition Labor party pledging to curb tax perks for property investors if it wins, confidence is likely to be hit further, Lawless said.

(Updates with economist comment in 8th paragraph.)

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