It’s been 12 consecutive months that we’ve seen Australia’s property prices falling. By historical standards this decline is mild, yet this hasn’t stopped the flurry of questions wondering how long or how big this downturn will be.
Earlier this week, figures from CoreLogic revealed that prices will likely continue to decline in October.
And it seems this trend could continue well into 2019 and beyond.
What you need to know to get ahead of the property downturn
Melbourne has at last taken over Sydney as the nation’s weakest housing market, September saw both cities posting considerable monthly property declines. With last month marking the 12 straight months that we have seen these declines.
Melbourne led declines with 0.9% downturn in house prices. Sydney, Perth, Darwin and Adelaide have also recorded price drops in the first month of spring.
The only cities that boasted gains were Brisbane, Canberra and Hobart, but even then they were modest.
UBS’ Australian economic team believes that Aussie property prices will remain strained for a while yet. George Tharenou, an economist at UBS, told reporters:
‘We’ve long expected the value of home loans to drop by a cumulative 20 per cent, which is the main driver of home prices, which consequently will likely fall 5 per cent plus.
‘We expect further credit tightening, and the RBA’s lack of willingness to cut rates this time, to see the longest house price downturn in decades.’
Meanwhile Bessie Hassan, a spokeswoman for Finder, also warned what could be to come:
‘Property crashes can be long and drawn-out and downturns may last several years before levelling out.’
Last month Finder’s panel of 30 economists and experts predicted that the property downturn could last 20 months and up to 24 months in Sydney and Melbourne.
‘This property downturn is being experienced far and wide and doesn’t appear to be slowing down — many regions across the nation have been affected,’ Hassan said.
Tim Lawless, CoreLogic’s head of research, said there were many factors that have weakened the property markets in Australia. Stating:
‘Foremost of which is the tighter credit environment which has slowed market activity, especially amongst investors.
‘Fewer active buyers has led to higher inventory levels and reduced competition in the market.
‘Collectively, these factors have been compounded by affordability challenges, reduced foreign investment and a rise in housing supply.’
And of course a slowdown in market activity means that houses are now staying on the market longer…
‘Advertised stock levels are already 7.6 per cent higher than the same time last year across the combined capitals, despite a 5.7 per cent reduction in ‘fresh’ stock being added to the market.
‘The rise in inventory is simply due to a lack of absorption; with fewer buyers, homes are taking longer to sell.’
Bad news ahead for Australia’s property prices
This downturn doesn’t appear like it’s letting up.
It seems generally the more expensive up-market areas are being impacted the most by this downturn.
Back in August, Corelogic’s monthly home price index indicated a national 0.4% price fall in our capital cities. Prices have been down nearly 3% over the last year, and 1.2% in the last three months alone.
With Melbourne now leading the way in price declines, we have seen a 2% fall in as little as three months. Granted Sydney’s 5.6% fall is still the worst decline over the past year.
And there could be more bad news to come…
‘The news that the first of the big four banks will lift variable mortgage rates in September is likely to send a chill through the housing market,’ Mr Lawless said.
Mr Lawless detailed the types of effects that borrowers could expect, saying:
‘With household debt at record highs, borrowers are likely to be sensitive to small movements in the cost of debt and this upwards shift in mortgage rates is a negative for housing market conditions.’
Meanwhile, this rise in interest rates and the tightening of lending, combined with a great lack of investors and timid buyers might mean that home owners wishing to sell may need to lower their expectations.
‘For sellers, they really need to be very realistic about the market … and set appropriate prices for the market, which means not prices that they would’ve set 12-18 months ago,’ Mr Lawless concluded.
For Markets and Money
PS: Want to know how you could weather the Downturn in Australia’s property market? Economist Harry Dent reveals in his free report: ‘Two Rules for Surviving a Potential Property Collapse.’