Aussie House Prices Are Falling, and Could Continue Well Into 2019

It’s a universal truth that any bubble is in danger of bursting.

And when it does, usually it will settle back down to where the bubble began, or even lower.

Australia managed to dodge the housing downturn trends that afflicted the US and other countries after the Global Financial Crisis. In comparison to recent declines, Australian property prices have been relatively docile.

We had China to thank for that, and its insatiable appetite for natural resources. But now China’s demand has slowed considerably. And we have finally seen declines in Australia’s housing property market.  

Previous downturns were typically followed by rate cuts made by the RBA. But this situation is unlikely to occur again, with rates already at record lows.  The RBA is unlikely to come to housing’s rescue, this time.

Credit growth is also slowing according to recent data by ABC, driven by sharp declines in investor loans. Banks are tightening lending standards in response to risk, and to sharp criticisms of lending standards from the ongoing royal commission into the industry.

Are you prepared for an Aussie housing collapse? Find out before it’s too late.

This month, RBA Governor Philip Lowe pointed out that average interest rates have been declining over the past year, which seems at odds with slower credit growth.

Since September 2017 Australian property prices have declined 2% nationally, less than the historical average of 4% in the seven downturns since 1982.

The length of the current housing downturn is shaping up quite differently this time. Previous declines usually only lasted a year on average. This one is already at 11 months and according to UBS economics’ team those falls could potentially extend into next year.

How will this affect Aussie households?

According to APRA, you may see stricter lending standards enforced by banks, higher debt-to-income ratios, as well as more rigorous expense testing result from this.

UBS analysts claim the falling price of Aussie property could continue into next year, and with little room for RBA to cut rates this might spell trouble. This, along with present headwinds to credit growth are compressing house value in part.

UBS commented:

History reflects the RBA almost always cut rates almost always cuts rates soon after house prices began falling, with an average of lag of 9 months…

Lower interest rates quickly boosted affordability, driving a sharp increase in demand. With lenders willing to provide credit, it saw a rebound of home loans, which then quickly lifted prices.’ 

It’s already evident that millennials aren’t buying homes as early or to the same degree that Boomers did. But don’t just assume that real-estate prices will always be going up, the reality is housing prices often correlate more with inflation rates long-term rather than actual economic growth.

What you can expect for Aussie house prices

The prospect of property prices, looks to be following this well-known saying: what comes up must come down, or in other words things are going to get a lot worse before they get better. Of course, that’s no guarantee.

UBS expects an extended phase of tightening credit availability, meaning it will be harder to gain loans after a cumulative drop of 20%. As they stated:

We believe this is likely to continue to drag on prices and see falls of 5% + over the next year…

Given a likely lack of policy easing in the coming cycle, home prices will probably keep falling into next year, seeing the longest downturn in many decades.

So with the nation grappling with parliamentary turmoil this could damage the Australian property market further. In the event of a Labor government in power, policy changes to capital gains tax concessions and limits to negative gearing might also point towards an even more negative outlook.

Regards,

Ryan Clarkson-Ledward,
For Money Morning

PS: Economist Harry Dent Warns that the next economic upheaval is at our doorstep: Overvalued Housing Market Set to Implode. Read his free report ‘Two Rules for Surviving a Potential Australian Property Collapse’ click here.


Ryan Clarkson-Ledward is a junior analyst for Markets & Money. Ryan has degrees in both communication and international business. His priority is bringing you the latest price updates on stocks through ASX updates, as well as supporting Sam Volkering with background research. As part of the team at Markets & Money his aim is to provide unbiased and relevant news for readers. Ryan’s work with Sam is designed to provide research that complements Sam’s analysis for small-cap and technology stocks. Together, their objective is to break through all the jargon and give you the hard facts to inform your investment decision-making. Ryan writes for:


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