(Bloomberg) -- Australia’s housing market downturn is likely to be “shallow and short-lived,” though it’s hard to see growth returning until home affordability improves, according to CoreLogic Inc.
The property consultancy’s national Home Value Index slipped 0.1% in December following 21 months of gains, signaling the start of a downturn. The decline was driven by Sydney and Melbourne, which account for about 40% of Australian housing stock, and a slowing in other regions, according to CoreLogic’s head of research Eliza Owen.
“A cyclical downswing is likely for early 2025 but it may not be large,” Owen said. “In the same sense, its hard to see any material growth returning to housing values, at least at a macro level, until housing affordability and loan serviceability improves more substantially.”
Demand for housing has weakened in Australia in part due to slowing economic growth and still-high interest rates. Still, the market is likely to hold up because sellers may be able to withhold their property until prices begin rising again, effectively restricting available supply, Owen said.
With unemployment at a low 3.9% and a majority of mortgaged households able to cope with current interest rate settings, a rise in forced sales are unlikely, she added.
The downturn could be “relatively small” also because real incomes are rising as inflation moderates, there’s a potential reduction in interest rates and a “fundamental shortage” of homes, Owen said. A squeeze on the delivery of new housing amid weak capacity in the construction sector could limit the decline, she added.
Australia’s central bank will hold its first meeting of the year in February where some analysts, including Bloomberg Economics, see a solid chance of a cut to 4.10%. Overnight-indexed swaps see a 65% probability of a February reduction while an easing isn’t fully priced in until April.
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