November 1, 2018 / 5:40 AM / 15 days ago

UPDATE 1-Australian home prices skid, Sydney down most since 1990

* Oct annual price fall in Sydney biggest since 1990 - CoreLogic

* Expect prices to remain soft into 2020 - RBC economist

* Sept retail sales due Friday to show weak spending - poll (Recasts, adds milestone for Sydney property market, economist comment)

By Swati Pandey and Kate Ashton

SYDNEY, Nov 1 (Reuters) - Home prices in Sydney, Australia’s biggest city, posted its worst annual performance since 1990 in October, dragging down national values and pointing to a further slowdown over coming months in a blow to consumption.

Property consultant CoreLogic said on Thursday its index of home prices nationally sank for a 13th straight month in October, leading to an annual fall of 3.5 percent, the weakest since February 2012.

Prices in Sydney tumbled 7.4 percent from a year ago to clock its largest annual decline since a 7.9 percent drop in February 1990. Melbourne played catch-up with a 4.7 percent year-on-year fall last month.

Property values in Sydney and Melbourne had skyrocketed to record levels last year as all-time low interest rates fuelled a debt-binge in the housing market.

But, a recent regulatory clampdown on risky lending helped cool the once-booming sector while interest from Chinese buyers has evaporated as authorities there cracked down on capital flows.

“We think house prices will remain pretty weak into 2020, a drawn out soft period,” Su-Lin Ong, Sydney-based chief economist at RBC, told Reuters.

The longest and the deepest downturn in Sydney’s property market between 1989 and 1991 lasted 24 months with values falling 9.6 percent from peak to trough, according to CoreLogic.

During that time, standard home loan rates for owner occupiers were around record highs of 17 percent, data from the Reserve Bank of Australia (RBA) shows. Comparable rates now hover around 5.2 percent and have broadly remained unchanged since mid-2016.

“When you overlay weaker house prices in terms of discretionary spending, it creates an added headwind for consumption,” RBC’s Ong said.

“The odds are that it will make it harder for consumers.”

DISCRETIONARY RETAILERS SUFFER

Economists have long worried about the impact on household consumption from snail-paced wage growth and a cooling housing market.

The RBA itself has repeatedly cited consumer spending as a “continuing source of uncertainty” as the household debt-to-income ratio surged to an all-time high 190 percent.

So far, household consumption has held up well and analysts will get a chance to check the pulse of the retail sector in September data due Friday.

Economists polled by Reuters expect a tepid 0.3 percent gain for September, unchanged from the previous month, while third-quarter volumes is seen slowing to show a 0.4 percent lift.

“House prices are probably a good barometer for consumer confidence. It’s pretty much a signal of a lacklustre domestic economy,” said Jason Teh, chief investment officer at fund manager Vertium Asset Management.

“Companies most leveraged to house prices are discretionary retailers.”

Shares of discretionary retailers such as JB Hi-fi and Harvey Norman have slid 8 percent and 22 percent respectively so far this year. The benchmark S&P/ASX 200 index is down about 4 percent. (Reporting by Swati Pandey and Kate Ashton; Editing by Shri Navaratnam)

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