Largest Property Price Falls in Six Years

Owning your own home is often considered the official ticket into full-fledged independence. At least, that’s what parents tend to tell their kids.

Becoming a 30-year old who still lives in their parent’s basement, with nothing more to their name than a few gaming consoles, is a threat that’s been looming over young adults for the past couple of decades.

And it’s been growing into more and more of a reality here in Australia, as property prices gradually climbed to staggering heights, starting at the turn of the century.

For many young Australians, any hope of ever owning a home was resting solely on how well their inheritance went in their favour. There was just nothing available in the price range of a recently graduated Gen Y in their first few years of steady full time income.

In other words, the hungriest buyers were forced to suppress their appetites.

But suddenly, there’s now more food than there are mouths to feed. And it’s just sitting there to rot.

Recent figures

Property analysts CoreLogic have released their latest data, which reveals Melbourne’s shocking overtake of Sydney as Australia’s worst performing housing market. This is the worst price falls Melbourne has seen in six years.

But it’s not just the city of coffee snobs who are feeling the heat. The data also revealed the fastest nationwide drop in housing price since 2012.

It should be obvious, but just to make sure we’re all on the same page…

This is not good news. 

No helping hand

There is justifiable link between these falling housing prices and the new strict lending conditions placed on first-home buyers. And, with the current activity of the Royal Commission creating anguish amongst our big four banks, these tight strings aren’t expected to loosen any time soon.

As CoreLogic’s head of Research, Tim Lawless states:

We will continue to see this fairly tight credit situation dampening property market exuberance, going forward.’

Ultimately, the general consensus regarding owning property has morphed into it being too great a risk for the trouble it’s worth.

Which means property isn’t selling.

Which means property investors are suffering.

The cascading effect

Recent reports from Domain have emphasised a decrease in rent growth in Sydney. Rent payments have dropped an average of $60, purely because landlords would be fools to up their prices in areas where property is rapidly decreasing in value.

And speaking of this decreased value, it isn’t just investment property owners who are feeling the heat of this crash.

Yes, even those seeking to downsize from their family home are facing the awful reality of a declining housing market.

With property value dropping at these rates, negative equity is becoming all too common. Home owners spend years paying off their mortgage, only to find this amount exceeding their current house value.

This means, even after paying back the value, people are left still owing the lost equity from this falling market.

In other words, their once upon a time investment has ended up costing them.

What does this mean for the future?

Though a drop in housing price looks appealing on the surface, the current state of the banking industry still makes buying a house too scary a prospect for many.

What’s more, despite the drop, the median dwelling price in Sydney is still exceeding $800,000…well above the budget of many Australians.

In fact, Mr Lawless seems to hit the nail on the head when saying:

We can’t see any factors that may halt or reverse the housing market’s trajectory of subtle declines over the second half of 2018.

Like we said, this is not good news.

Regards,

Imogen van der Meer,
For Markets & Money


Markets & Money is unlike any other finance newsletter. Our mission is to look at the world of investments and finance in a sceptical and contrarian way. Our editorial team looks beyond the headlines and obvious explanations to bring you what we think is really moving the market. More importantly, we’re trying to show you where the next big opportunities and where the big risks are that you might not be aware of. In Markets & Money you’ll read about the state of the Australian housing market, the future of the commodity boom, China’s rise to an economic superpower, the fate of the US dollar, and of course a whole lot more.


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