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07-10-2014, 11:02 PM
Buyers face correction in hot property markets, QBE warns
THE AUSTRALIAN OCTOBER 08, 2014 12:00AM
Michael Bennet
Reporter
Sydney
ONE of the nation’s largest mortgage insurers has cautioned that buyers may be setting themselves up for a property price “correction” in the hot Sydney and Melbourne markets, adding to growing concerns about the hit to the broader economy.
As the Reserve Bank yesterday held official interest rates at a record low, QBE’s annual housing outlook report signalled price growth would begin to slow from the second half of next year as the cash rate cycle turned.
While this financial year would see further gains, led by Brisbane (7.4 per cent) and Sydney (7.2 per cent), the report, researched by BIS Shrapnel, warned a “correction” could be lurking further down the track.
The concerns reinforce those of the RBA, which last month revealed that regulators were considering capping lending to investors due to fears the market was “unbalanced” and the economy was vulnerable to a sharp reversal in prices.
“The RBA’s assessment is that the risk from the current strength in housing markets is more likely to be to future household spending than to lenders’ balance sheets,” the Reserve Bank said.
QBE, which owns QBE Lenders Mortgage Insurance, warned that affordability in Sydney was headed towards early to mid-2000 levels, and 2008 and 2010 levels in Melbourne — both precipitated “price corrections”.
“There is the potential for a price correction to happen again, although any decline is likely to be in low single-digit percentage terms as has occurred previously. Nevertheless, in real terms, the decline would be larger,” the report said.
Housing affordability is being probed by a federal inquiry as first-home buyers are increasingly priced out of the market.
Sydney’s median house price is forecast to peak at $915,000 by June 2016, before a 3 per cent correction knocks it back to $885,000, according to QBE.
Melbourne is also in for a tougher time as standard variable mortgage rates rise to 6.8 per cent in the next three years, taking the median to $690,000 — a 4 per cent decline in real terms.
The end of the mining investment boom and rising rates is also expected to hit Perth’s values, QBE LMI declining 2 per cent to $525,000 by mid-2017. But in real terms, adjusted for inflation, the fall in Perth is a hefty 10 per cent.
“Most interestingly this year is that the report has forecast a dampening of growth before prices begin to stagnate as early as next year,” said QBE LMI chief Jenny Boddington.
THE AUSTRALIAN OCTOBER 08, 2014 12:00AM
Michael Bennet
Reporter
Sydney
ONE of the nation’s largest mortgage insurers has cautioned that buyers may be setting themselves up for a property price “correction” in the hot Sydney and Melbourne markets, adding to growing concerns about the hit to the broader economy.
As the Reserve Bank yesterday held official interest rates at a record low, QBE’s annual housing outlook report signalled price growth would begin to slow from the second half of next year as the cash rate cycle turned.
While this financial year would see further gains, led by Brisbane (7.4 per cent) and Sydney (7.2 per cent), the report, researched by BIS Shrapnel, warned a “correction” could be lurking further down the track.
The concerns reinforce those of the RBA, which last month revealed that regulators were considering capping lending to investors due to fears the market was “unbalanced” and the economy was vulnerable to a sharp reversal in prices.
“The RBA’s assessment is that the risk from the current strength in housing markets is more likely to be to future household spending than to lenders’ balance sheets,” the Reserve Bank said.
QBE, which owns QBE Lenders Mortgage Insurance, warned that affordability in Sydney was headed towards early to mid-2000 levels, and 2008 and 2010 levels in Melbourne — both precipitated “price corrections”.
“There is the potential for a price correction to happen again, although any decline is likely to be in low single-digit percentage terms as has occurred previously. Nevertheless, in real terms, the decline would be larger,” the report said.
Housing affordability is being probed by a federal inquiry as first-home buyers are increasingly priced out of the market.
Sydney’s median house price is forecast to peak at $915,000 by June 2016, before a 3 per cent correction knocks it back to $885,000, according to QBE.
Melbourne is also in for a tougher time as standard variable mortgage rates rise to 6.8 per cent in the next three years, taking the median to $690,000 — a 4 per cent decline in real terms.
The end of the mining investment boom and rising rates is also expected to hit Perth’s values, QBE LMI declining 2 per cent to $525,000 by mid-2017. But in real terms, adjusted for inflation, the fall in Perth is a hefty 10 per cent.
“Most interestingly this year is that the report has forecast a dampening of growth before prices begin to stagnate as early as next year,” said QBE LMI chief Jenny Boddington.