SYDNEY • It is a winter weekend in Sydney's bustling northern suburb of Chatswood and a three-bedroom family house sporting an endless garden is up for auction. It is priced to sell at A$1.88 million (S$1.89 million) but no buyers bite and the sale is abandoned.
On the same day, in the heart of the city a two-bedroom apartment with panoramic harbour views fails to sell as no bidders turn up.
Auctions are a bellwether of demand in property-obsessed Australia, where attending sales is like a national pastime. So it is telling that only about half were successful the weekend last month a Reuters reporter visited some of Sydney's auctions, compared to over two-thirds for all of last year.
While that week was the worst since 2012, it was not a one-off. Auction clearance rates have been in the mid-to-low 50 per cent range for each of the past nine weeks.
The recent weakness in the Australian housing market, which has been one of the drivers of an economy that has now grown for 27 years without a downturn, has some economists warning of heightened risks of a recession and even a financial crisis.
The slack has been partly engineered by the authorities. Curbs on lending to foreigners, foreign buyer taxes and a clampdown on capital flows by Beijing have hurt bubbling demand from Chinese investors, who have been important contributors to the housing boom of recent years.
There are signs of a similar fall in Chinese investment in Vancouver, Canada - which has been a red hot market in recent years and where the authorities have intervened by raising taxes on foreign buyers.
In Australia, a government-mandated inquiry into the nation's banks has turned up so many misdeeds that the industry has restrained some lending. Annual growth in housing credit has braked to four-year lows while building approvals have come off a peak and nationwide home prices have started to fall for the first time in six years.
Home values in Sydney, the country's largest city, are down 4.4 per cent compared to June last year, the sharpest fall since 2008 and far away from the 19 per cent growth enjoyed early in 2017, according to property consultant CoreLogic.
The annual price increases in Melbourne and Brisbane have braked to around 1 per cent, down from double-digit growth last year.
"We have shifted a greater proportion of our assets offshore as an intensifying slowdown in housing is likely to increase downward pressure on the Australian dollar," said Mr Ben McGarry, Sydney-based portfolio manager at A$185 million hedge fund Totus Capital.
With speculative buyers pushed out of the market by a clampdown on banks' mortgage lending over the past couple of years, including stiff curbs on buying properties for rent, things are looking up for prospective buyers.
"I have been waiting for this slide to start," said Mr Arif Hossain, 37-year old biomedical engineer in Western Sydney, who is looking for a four-bedroom house.
"The properties I am looking for were selling at around A$1 million just some months back. They have fallen below A$900,000 but still there is no sale," he said. He wants prices to fall to A$750,000-A$850,000 before jumping in.
But such falls could be painful.
With prices now in decline, the wealth effect could easily turn into a headwind. Already, households suffered the largest loss on land and dwellings in six years in the first quarter.
"The consumer was already the weak link in Australia's growth story," said Westpac senior economist Matthew Hassan. "The housing correction is an additional downside risk to the outlook."