For the past couple of decades, Australians have been watching house price increase rapidly. With the continuous rise, many have cautioned about the possibility of a bubble. Some have even started to feel that the inevitability of a bubble is already starting to take hold as housing prices have begun dropping throughout the country.
But are we facing an American or British calibre meltdown?
There is a solid argument that the environment that lead to those crises is starting to feel uncomfortably familiar here. Record-low interest rates, generous tax breaks, and a national obsession with property and glorified home renovation shows.
People are excited (or anxious) about the home market and everyone wants to know what’s next.
Based on the trajectory of 2017 and the patterns through the first quarter of 2018, there are several trends we can expect for the remainder of the year.
Check out these five!
Home prices will slowly start to stabilise
By the end of 2017, we saw home price growth start to stall out. In some larger cities, homes began to even lose value.
While some people used first quarter findings from the CoreLogic home value index to predict that home prices were going to level off this year, a more comprehensive look at the market suggests that the stabilisation will come much more slowly.
According to a new analysis of property listings and sales data by Capital Economics, we should expect home prices to continue to decline for the next several years. This analysis considers CoreLogic’s flat reading for home prices and combines that with an analysis of home listings versus home sales.
Long story short, there are more houses put on the market each month than there are houses that sell. And that is a signal of more pricing decreases. Capital Economics predicts that those decreases could drop to the tune of 10% over the next three years – with bigger cities taking the brunt of the drop.
But, the good news is that by 2021, the price corrections in the housing market should reach a plateau. And, because the correction will come gradually instead of more suddenly, we should avoid the country-wide economic doom that has plagued other nations who have been through similar pricing adjustments.
But apartment prices will continue to fall
While home prices will experience steady, but not drastic declines over the next few years, you can expect the price drop in apartments to be more drastic.
When comparing the ratio of new home listing to sold houses and the ratio of new apartment listing to sold apartments, it is clear that we are in the midst of a severe apartment oversupply.
The construction boom that was largely fueled by the need to address a nationwide housing shortage led to the steady construction of high and mid-rise apartment buildings. Well, that boom has overcompensated for the housing shortage and now there are a lot of apartments without enough people to fill them.
Not only will this slow down construction and potentially affect an untold number of workers, but it will also have an adverse and potentially drastic effect on apartment prices for the foreseeable future.
So don’t expect a full recovery this year
Because of the continued downward trends in home and apartment values, you should not expect the market to fully stabilise (let alone bounce back) this year. 2018 is sure to be the year of slight, but steady declines in housing and considerable drops in apartment pricing.
This is not all bad news. Drops in prices could be good for those looking to buy a home that they plan to live in for an extended period and wait out the downturn. Also, those looking for rental units or vacation homes might find some good values with the market slowing down, and in many cases reversing.
Ultimately, whatever your strategy – when thinking about property in 2018, make sure you are thinking about your long game.
The Sydney housing marking is so last year
The housing prices in Sydney have skyrocketed since 2012, leaving some economists to estimate that prices in the city have inflated at least 25% above what they should be. Still, that didn’t stop people from wanting to get into the Sydney market, driving the continued boom and price increases.
Well, that seems to be coming to an end.
Over the first quarter in 2018, Sydney housing prices dropped 2.4%, demonstrating the weakest trend in the entire country.
And this trend isn’t expected to slow down any time soon.
As interest rates increase, households work to manage debt, and city dwellers have more options between cheaper apartments, the Sydney market is likely to continue to suffer.
The retail power is shifting from sellers to buyers
In years leading up to 2018, it was a good time to be a seller. People were selling houses as soon as they could list them, and often getting more than their asking price. Now, with banks practicing tighter lending practices and the housing shortage drawing to a close, houses are staying on the market longer and longer.
The pendulum is swinging in favour of buyers.
While the median home price in Sydney still stands at about $880,000, more affordable housing is becoming available in other parts of the country and buyers will have more leverage in bargaining as prices continue to fall over the next three years.
So should we expect a huge economic melt-down due to the real estate market? Probably not. But it’s best to understand the trends to help you make your next property move!