What you need to know about Falling Property Prices

Last week we saw property prices continue to drop across most of Australia’s mainland state capitals, but the rate of these declines were still less severe than what we have seen in recent months.

Collectively, listings in each of the state capitals have risen by 9.8%, compared to this time last year, while new listings have fallen in the same period, according to Business Insider Australia.

It seems Australia’s economy has been travelling pretty comfortably, but a sore spot if there was one could be found in our housing market. Since late 2016, Aussie households have been the most over-indebted households in the world.

Quick question, can you survive a housing collapse? If your answer is no, or you haven’t put much thought into it, than I suggest you acquaint yourself with Markets & Money contributing editor Harry Dent, and his two key rules for surviving this potential Aussie housing collapse — you can read more about it here for free.

How slowing growth could support property prices

Yearly growth in listings in Sydney and Melbourne, when compared to 2017 in the same period, is beginning to drop off, which could potentially help property prices in the future.

Perth was at the forefront of falling property prices, with medium prices sliding by 0.4% which tipped overall declines for the past month to 0.8%.

Melbourne and Sydney prices fell by 0.1% each, furthering the declines of the last month in both cities to 0.5% and 0.6% respectively, as reported in Business Insider Australia.

Adelaide’s median prices saw previous gain for the city deplete by 0.1%, falling 1% over the last four weeks.

Brisbane property prices managed to reverse current trends, by with median prices gaining 0.1% over the week, which was consistent with its 0.1% gain over the last month.

The combined median price in the mainland Australian state capitals fell by 0.1% in average weighted terms over the last week. The 0.6% declines that we saw in October have appeared to reign back in to 0.4% this past month.

While we are well away from the beginning of a new trend, there’s speculative data which suggests that the rate of price declines is slowing — from a national perspective — despite continuing declines in auction clearance rates.

David Plank, head of Australian Economics at the National Australian Bank questions the future validity of auction clearance rates when using as an indicator for housing prices, saying:

It is possible that the auction clearance rate will lose meaning as an indicator in a world where it takes much longer to secure mortgage financing than in the past,’ Plank said.

Indeed, the role of auctions may diminish sharply with the change being structural rather than the usual cyclical downturn which sees auctions lose favour in a weakening market.

As Australia’s auction clearance rates decent to record lows, experts are warning of a looming ‘credit crunch’, as banks attempt to cope wit the tightening of lending standards put forth by the royal commission.

Housing Experts Call for regulators to step in

Research has found that more first home buyers and investors are now abandoning the property market altogether, escalating the risk of unruly correction. According to the Financial Review, regulators will have to take urgent action to regulate housing activity in for the sake of the Australian economy.

Credit drives prices up and the lack of credit drives them down,’ Digital Finance Analytics’ Martin North said on Monday.

This is not just a little adjustment — the household data is saying something very different is happening.

Mr North shared his stance amongst a crowded audience of Fund managers at the UBS investment conference in Sydney. Local and international investors alike have scrutinised the downturn in Australian property market, with varying amounts of excitement and deep concern.

UBS has been fairly outspoken in its warning of a credit crunch back home here in Australia.
One aspect that is influencing the cut back in credit is the improvement of accuracy in the systematic assessment of borrower expenditure, and the ability to bear higher mortgage repayments, the Financial Review reports.

UBS banking analyst Jonathan Mott stated that despite the tightening of borrowing standards, this doesn’t automatically mean that borrowers will be unable or less likely to get a loan.

Credit is still freely available for borrowers as long as they tell the truth,’ he said.

Another analyst directing attention to the regulators response is Corelogoic’s analyst of housing data frim, Tim Lawless.

He recently said that for the first time in a long time, there is now a possibility of a divided council of financial regulators, who see different measures of dealing with the declining property market.

The number of first home buyers looking to buy has halved in as little three months, according to Mr North, as the potential buyers await further drops. In response, the Reserve Bank and Treasury are centring on economic stability in the fallout of interim findings from the royal commission, which could mean harsher standards.

We are almost seeing opposing, conflicting policies there. The RBA have stated that we need to see credit loosening up a little but it is clear ASIC and APRA aren’t keen to be doing that now,’ Mr Lawless said.

Mr North expected politicians to take this action to avoid signalling an election.

The bottom line is this: There is a great deal of evidence suggesting a lift in mortgage stress, and this time it isn’t those struggling that will feel the brunt of the pressure.

I am more concerned about the more affluent households that have multiple investment properties, considerable commitments like school fees, and they are not seeing their incomes rise,’ Mr North said.

He adds that if granted, we see property prices continue to fall, and continuing credit restrictions, there will be more downsides to banks. This, of course, will results in bank share prices decreasing, as well as other sectors of the Australian economy feeling the effect.

Only time will tell, but if macro experts are looking to import regulators, you can bet there’s more behind the curtain.

Regards,

Ryan Clarkson-Ledward,
For Markets & 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’.


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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