Falling, falling, falling.
That is the narrative we’ve been hearing for the better half of this year about property values across Australia. Unless you’ve been hiding under your mattress, you’ll know that property prices have been declining and auction clearances are at yearly lows.
This news is potentially very worrying, and not just for everyday Australians. Prospective homebuyers are celebrating falling prices, but this is bad news for homeowners and property investors…and potentially disastrous for our whole economy.
We’re facing a situation where supply has overrun demand, and now there are more sellers in the market than buyers.
Property prices have fallen across most of Australia, but the biggest declines are in our two biggest cities. In Sydney, dwelling prices have fallen 5.6% from their August 2017 high, whereas Melbourne property prices are down 3.5% from their high in November 2017. Not only have we seen a shift from the recent long-winded property boom, but we’ve also seen major banks lift their mortgage interest rates. As reported by The Sydney Morning Herald:
‘ANZ, Commonwealth Bank and Westpac have all lifted their mortgage interest rates in the past two weeks, while two dozen smaller lenders have raised their rates over the past few months.’
It appears that Australia is finally recovering from a very drawn-out property boom. One so unnaturally long that it caused many Australians to believe our ever-rising property prices were normal. When in fact many of these properties are hugely overvalued compared to Australian incomes or to their rental yields — and now a correction must ensue.
The most trustworthy profession…
It’s interesting how, when property prices are rising, real estate agents will find any excuse they can to tell you about it. (That’s no surprise; they profit from a rising and active property market.)
However, once markets slow, it’s a different story. And almost all of the reporting on sales and prices that real estate agents use to spruik a rising market is purely voluntary. So when sales are harder to achieve and auctions aren’t working as well, they all of a sudden become very tight-lipped.
From ABC News:
‘Economist Lindsay David believes a lack of transparent information is hiding the true picture: an unwinding of Australia’s long property boom.
‘“When you see house prices rise, real estate agents and those with vested interests in the real estate market love to tell society how high house prices are rising,” he said.
‘But when house prices start to fall, all of a sudden transparency falls off a cliff.’
It seems real estate agents have a lot of power when it comes to the information the wider public sees about property prices. Is it any surprise to see them pushing their own agendas with the information they choose to publish and promote?
The question most Australians are asking now isn’t whether property prices will fall further, but how much, and what effects will it have on the rest of our economy. Huge amounts of Australia’s wealth is tied up in housing. And our banks, making up a massive 26% of the ASX, are highly dependent on housing lending for their profits.
Despite some economists predicting this recent decline in property markets for years, it seems the mainstream media has just caught onto the changing market conditions, and can finally see what is really going on here. Harry Dent, an economist known for his controversial but usually correct macro forecasts, believes we’re just at the start of a long-term bear market. And if you look at some of the headlines below, you can see Harry’s predictions gaining momentum…
From Business Insider Australia (2 October):
‘Australian home prices are falling faster and in more locations’
And it’s not just in Sydney and Melbourne anymore. It’s spread to the west. From The West Australian (1 November):
‘Australian property market slumps to 6-year low as Perth house values fall further’
We’re not the only developed country with this property value problem. If you look at the chart below, you can see we’re leading the charge in falling property prices, dropping violently from our healthy 2017 position, but Canada, New Zealand and the UK aren’t far behind:
Source: ABC News
The ABC News article chalks up this decline to three reasons:
- ‘Low interest rates now starting to rise
- ‘Tighter credit limiting buyers’ firepower
- ‘Regulatory crackdowns on foreign buyers removing momentum from key markets in a handful of cities such as London, Vancouver, Toronto, Sydney, Melbourne and Auckland.’
With house prices continuing to fall, especially in Melbourne and Sydney (the cities that led the boom), the pain isn’t over yet. How much farther could it fall? If you’ve been reading the forecasts at Harry Dent’s Boom & Bust Letter over the past year, you’ll know that a devastating 40% drop is within the range of possibilities. In fact, Harry thinks that could be a conservative estimate.
To read why, and how you could insulate yourself from the falls and prepare to profit from the recovery, read more here.
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