Are we heading for a property crash?
Many Australians might have become quite nervous about the property market of late.
Sydney recently posted the largest annual fall in house prices since the GFC and in July, Melbourne led the country in terms of declining values – recording a near one per cent decline.
Negative media headlines are likely concerning the public and leading to a type of self-fulfilling prophecy when it comes to negative housing sentiment. The reverse can also be true, with positive headlines during boom times often creating a ‘fear of missing out’ buying environment.
Common questions I hear at the moment are: “Is this the start of crash?” “Should I rush to sell now?” “How far will the market fall?”.
While it can be dangerous to try to predict the future, I thought it might be helpful to take a step back and look at the market in context.
Firstly, while the market posted a 1.6% decline in capital city values over the past twelve months, CoreLogic reports that values are still an incredible 31% higher than they were five years ago. So while the market has lost some momentum of late, in this context, recent falls may not be as dramatic for the market as many are saying.
The second interesting point worth noting about the market is that while Australia’s largest property markets of Sydney and Melbourne have been pulling the market down lately, many other regions are performing well or very well.
On an annual basis, Brisbane (+1.2%), Adelaide (+0.7%) and Canberra (+2.4%) have all recorded price increases in their respective markets.
Some are arguing that the Perth property market may have hit the bottom and green shoots are starting to appear.
Hobart has recorded an incredible 11.4% increase in prices over the previous year and led the nation in terms of growth over the recent quarter.
While many are right to be concerned about the slowdown in the larger markets, there remains ‘markets within markets’ in Australia and to say that the entire market is experiencing dramatic price declines is inaccurate.
Lastly, we are in a traditional slow winter real estate season. Auction clearance rates are falling in many markets and a lot buyers and sellers have chosen to sit on the sidelines until spring.
While I do not expect that spring will deliver incredible growth statistics like it has in previous years, it still may provide us with a better understanding of how the market is truly travelling.
I often say that real estate is a great place to be if you don’t have to sell and this may be especially true in this market. Long term investors often reap incredible rewards by riding out different market cycles and consistently building their portfolios with high quality assets.
Due to the ongoing health of the Australian economy and the low interest rate environment, I don’t believe that the current slowdown in the market is a precursor to a property market crash. In fact, a slight downturn in prices, or more moderate growth levels, could be a good thing for the market over the medium to long term.
My preference has always been for the market to achieve modest price growth. In my experience, this type of scenario often creates more sustainable markets which can benefit all property owners.
Published: Monday, August 13, 2018