A property auction in Birchgrove on Saturday. The 2012 slump affected inner-ring suburbs most. Photo: Anna Kucera
Predictions of house price falls of 7.5 per cent have brought back not-so-distant memories of the last property slump of 2012, when values in marquee suburbs plunged by up to 28 per cent in a year.
As home vendors confronted a subdued market after Westpac lifted home loan interest rates during the week, an analysis of suburbs that fell most in the last slump show the pain of house price falls was not shared evenly.
Median house prices in Sydney fell by 5 per cent in the year to June 2012 as the mining boom tailed off, based on analysis at the time by the Real Estate Institute of NSW (REINSW). Prominent suburbs such as Woollahra (down 28 per cent), Palm Beach (down 19 per cent) and Neutral Bay (down 18 per cent) were among the top 10 biggest falls across the city.
Shane Oliver, chief economist for AMP Capital, has predicted house prices in Sydney and Melbourne will fall by 5 to 10 per cent in 2017 – as long as there are not sharp interest rate increases or a recession.
He said Sydney could be in for a similar situation to that seen in 2012, in which houses that grew significantly in value over the last three years in store for some of the largest falls.
“My view would be areas where there has been a significant increase in supply, and the suburbs where there’s been the strongest gain, would probably be the most vulnerable in terms of declines,” Dr Oliver said.
“Whereas areas where there’s been modest gains, there’ll probably be a lot less risk.”
In 2012 the pain was spread across whole local government areas in Sydney’s top-end suburbs: Woollahra, Mosman and Waverley council areas were the hardest to fall.
The REINSW analysis found – contrary to perceptions that Sydney’s inner-ring suburbs are more impervious to price falls – that in 2012 a grouping of suburbs classified as inner-ring, including Marrickville, Mosman and Lane Cove fell by 6.5 per cent, a grouping of middle-ring suburbs such as Manly, Parramatta and Strathfield fell by 4 per cent, and outer-ring suburbs including Blacktown, Penrith and Gosford fell by 2.5 per cent.
The analysis noted the concentration of price falls in relatively expensive “inner” suburbs was demonstrated by 10 of those suburbs appearing in the top 20 suburbs that fell the most in the 12 months to June 2012.
Information released last week by investment bank Macquarie predicted national house prices would see a 7.5 per cent decline from March next year, a stance backed up by Credit Suisse, who said investing in housing was increasingly risky.
Westpac announced on Wednesday it would raise interest rates for owner-occupied home loans, the first rise of its kind in three years for Australia’s second-biggest bank.
Dr Oliver said his prediction of house price falls could be accelerated in the wake of the Westpac rate rise as “the bad news for the Sydney property market is sort of piling on”.
“When I’m talking about 5 to 10 per cent, some suburbs could see declines of 20 per cent and other suburbs could see none at all,” Dr Oliver said.
“Domain have been seeing signs of price declines already in western Sydney. I suspect initially the lower-income parts, where there has been a supply increase, will be the parts most vulnerable. Then, as time goes by, some of that might spread to some areas around the inner-city parts, again where there’s been a lot of construction activity, then out to the eastern suburbs.”
However Andrew Wilson, a senior economist with Fairfax Media’s Domain group, said he doesn’t agree with an assessment house prices will fall.
“There’s nothing that will grab the attention of Australian homeowners more than the headline ‘house prices falling’,” he said. “There’s no historical precedent for this [prediction], particularly given we do not have the prospect of a sharp increase in interest rates.
“Short term variances might occur, but those things reflect confidence more than anything else.”