Aus housing: green shoots appearing

Price declines in Melbourne and Sydney are already starting to moderate, suggesting we are most likely past the worst of the housing downturn.

"If prices fall in line with ANZ Research’s expectations and the economy remains in good shape, demand and sentiment should turn around”

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Sentiment also supports the view some green shoots for housing are appearing.

Recent consumer sentiment surveys suggest a growing number of households believe it is a good time to buy a home. This likely reflects the improvement in affordability brought about by price declines.

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Better deposit affordability as a result of falling prices, along with improvements in sentiment, is encouraging first home buyers to enter the market.

The number of years needed to save for a deposit for a Sydney home (on median incomes and prices) has fallen from 10.6 to 9.2 and stamp duty concessions in New South Wales and Victoria have also encouraged first home buying.

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On the seller side, it is taking longer on average to sell homes but most households are coping well with the downturn.

While household debt has reached 190 per cent of household disposable income across the economy, serviceability of mortgages is not a problem for most.

There are some signs of increased stress on homeowners moving from interest-only loans to principal and interest loans and default rates for these borrowers have moved a little higher from a very low base in recent months.  However, there are no signs of forced selling with the number of new listings continuing to fall.

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Improving affordability will be an important ingredient in turning around the current cycle.

If prices fall in line with ANZ Research’s expectations and the economy remains in good shape, demand and sentiment should turn around. We are unlikely, however, to see a V-shaped recovery.

Adelaide Timbrell is an Economist and Felicity Emmett is a Senior Economist at ANZ