Thanks to interest rates remaining at historical lows, the Aussie property market has experienced years of continuous growth. While there have been a few slight dips in property prices over the past decade, there has been no significant sign of the housing market slowing or a decline – until now.
Some may say that this property price growth was unsustainable and the bubble has finally burst. But, before drawing any conclusions, it’s important to take a look at the whole picture.
Why did property prices start to decline?
There are a number of factors which have contributed to the market downturn over the last 12 months. Due to policy changes, banks have tightened up on lending criteria and borrowers are being scrutinised more heavily, with many house hunters being declined funding. This has restricted the number of buyers in the market and, consequently, decreased competition* – forcing prices down.
Add in the recent rate rise , along with low income growth, and it’s easy to see why there isn’t the same confidence in the market there once was.
Even though auction clearance rates seem to have stabilised, property prices still haven’t picked up.
In certain areas, the supply of new apartments has put downward pressure on the housing market. Although in the last couple of years, there has been a boom in the construction of new home building in certain areas, we have reached a peak where supply far outweighs demand. It has been reported, though, that once construction slows, the market could begin to pick up again*. In comparison to this, Melbourne has actually had a shortage of new property compared to population growth- which could account for high auction clearance rates and property prices over the last few years.
How will the current property market affect you?
The most dramatic decline in property prices are seen in areas that have some of the most inflated prices in the country – namely, areas of Melbourne and Sydney.
Over the last 12 months, the most expensive properties in our capital cities fell an average of 5.4 per cent*.
Homeowners in these suburbs, which have experienced a lot of competition and steady capital growth, are now having to adjust expectations when putting their property on the market.
But, the current state of the market isn’t an indication of future housing prices in these suburbs, nor is it a prediction that prices in other areas are going to follow suit.
In fact, there are still many suburbs offering buyers a healthy return on investment. Additionally, for buyers who were once priced out of highly sought-after areas within Melbourne and Sydney, the softening of property prices could open up opportunities to buy.
Where is the Australian property market heading?
The decline in the property market is by no way uniform across the country. According to a recent report by the ABC^, Australia can’t be considered as just one market, but as many micro-markets.
A broader look shows that there are still cities, and even suburbs within our biggest cities, where property prices aren’t declining at all – these areas are actually on the rise. And rising fast.
It means that property can still be a fantastic investment and purchasing at a lower price may yield a good return when prices recover. Alternatively, it could simply offer a great opportunity to buy your dream home now, while prices remain soft.
Whatever your property goals, it pays to understand the market and your end game. For more information about timing your entry into the market, this article covers the basics. Or, better yet, contact the Neue Black team to start planning your financial future today.