There are no shortage of negative media around declining house prices and tighter lending conditions. But is all the doom and gloom justified or is it just a natural much-needed market correction, let’s take a closer look.
Australia’s national property prices have consistently fallen over the past 17 months, a 6.8% decline since October 2017 but most recently, a decline of just 0.6% in March 2019 evidencing this decline is easing slightly.
While the entire country is feeling the decline, some markets are affected much more than others. For instance, real estate values in Sydney have steadily fallen with values falling by 4.1% earlier this year, and the rate of decline easing to 1% in February 2019.
The Melbourne property market has suffered a total decline since the market peaked in November of 2017 to -9.6%. This market is very divided, with detached houses having fallen more (-11.5%) and apartments (-3.7%) in the past year. The most-expensive upper end Melbourne properties showed a 13.1% fall in value over the previous 12 months, yet the least-expensive properties on the market are down by just 2.1% for the same time, evidencing investors and first-time home buyers are taking full advantage of this declining market.
Market conditions in Perth appear to be one of the country’s largest struggle with a decrease of 17.4% since June 2014.
Whereas the Brisbane market has not suffered nearly as much, with only a -1.0% decline since April of 2018, however the expectations of a market correction for Brisbane is not expected to be nearly as promising as Sydney’s.
An increasing number of developers and investors from the east coast have recently turned their attention towards Adelaide
The market in Adelaide has shown positive growth, recently increasing 1% over the past year and is progressing naturally with a healthy balance between supply and demand and positive economic conditions. An increasing number of developers and investors from the east coast have recently turned their attention towards Adelaide, as it is proving to be a more stable market right now with positive turnarounds. The lack of volatility in the Adelaide market combined with a reasonably-balanced supply and demand, makes it attractive to both local and interstate investors.
Surprisingly, Hobart has been the highest performing market over the last three years with increases of 6.8% and apartments growing in value by 8.8%. However the history of Hobart’s real estate market shows it’s remained stagnant for long periods of time without much capital growth. While it’s a sound investment area, it’s a market more suitable for a long term hold strategy.
The cause of the decline has many contributing factors including:
- a drop in investor activity due to lenders tightening lending regulations;
- many overseas investors are struggling to get funds out from their countries of origin,
- a decrease in consumer confidence surrounding the current state of the market, and;
- an uncertainty about upcoming Federal elections.
The Australian market is also driven by many local factors include job growth, the mining industry, population growth, a lack of consumer confidence that the market will turn around in the near future and a decrease in supply and demand.
The downturn in the market has proven to be beneficial for buyers and investors as they are facing far less competition, whilst experiencing lower lending rates and increased buying incentives. Vendors with intent to sell are very aware of the cyclical market and the importance of timing to obtain the highest profit value for their hard-earned capital. We may see a decline in listed homes as vendors holdout in lieu of accepting large financial losses on their investments. This will, in turn, likely further positively affect the supply and demand balance.
With so many influences affecting the market, the upcoming year proves to be interesting. We are bound to see growth in some areas, no growth in others and declining prices in yet other markets. Perhaps it’s timely for investors to re-evaluate their overall property investment strategy and portfolio.
The prevailing price declines at the time of historic low interest rates combined with steady unemployment and job growth rate, likely suggests that this market downturn is more likely to be a self-inflicted, albeit, much needed positive correction. Given we are also already seeing increases in some markets, specifically in the Hobart and Adelaide regions, we are hopeful the correction in the real estate market will stabilize without further substantial declines.
This may be the longest and steepest downturn in the history of Australia’s real estate market, but the declines easing over the last few months provide a positive outlook. We have confidence the market will stabilize in the near future, possibly making now an excellent time for investment. However, it would still be prudent to undertake thorough due diligence and research prior to acquiring any additional investment properties.