Saturday, 5 May 2018
Is Australia’s Real Estate Market Turning?
Last year’s December quarter gave rise to speculation that Australia’s real estate boom was over, with experts predicting property price weakness in 2018 as prices fell in capital …
April 23, 2018
Last year’s December quarter gave rise to speculation that Australia’s real estate boom was over, with experts predicting property price weakness in 2018 as prices fell in capital cities, causing significant drag on the headline growth figures.
Now that the first quarter of the year has come to a close, how are the experts’ predictions shaping up? We take a closer look at what the experts expected would happen this year and what we can tell so far about Australia’s property market performance for Q1 of 2018.
Signs of cooling
Towards the end of last year, Australia’s property market started to show signs of cooling. Up until that point, the market had appeared solid, with prices enjoying high growth over the last five years in Sydney and Melbourne, two of the largest real estate markets in the country.
Housing was considered to be the country’s largest asset, and according to ABS estimates, thought to be worth $6.8 trillion across the whole of the nation. However, in 2017, interest rates remained unchanged, house prices started to slow down, and it was no longer affordable to rent property in capital cities.
That’s why for 2018, several experts predicted that property prices in areas such as Sydney would stop experiencing excessive growth and, rather, finally start to slow down. Some predicted that prices would stay flat (since an overvalued market won’t necessarily immediately correct itself), while others expected prices to fall, helping to drive lower national values.
This could be blamed on an increase in the supply of properties, fewer investors looking to buy, and tighter home lending restrictions. Indeed, Australia’s bank watchdog has tightened standards on investment and interest-only loans, which led to banks increasing rates on some mortgage products.
On the other hand, prices in certain coastal and regional areas were expected to grow. More specifically, this included areas within commuting distance to Sydney and Melbourne, which had enjoyed increased buyer demand in the previous 12 months. While buyers may face a long commute, affordability here was key.
Markets in regions along the east coast and Tasmania were also expected to remain strong, thanks in large part to retiring baby boomers selling up properties in Sydney to enjoy a near debt-free life on the coast. The more people moving to these areas, the more likely they would enjoy business growth, further pushing up desirability and prices.
The area predicted to enjoy the most growth? This would be our smallest capital city, Hobart, where the market was predicted to rise as much as 8-13%.
Is the property market turning?
Generally, the predictions for 2018 were not very positive. While some still predicted an increase in property prices, most seemed to agree that Sydney’s property market was overvalued and would continue to correct itself.
In February, national property values saw their fifth month on month decline in a row, demonstrating a 0.8% decline in the value of housing since September 2017 when the market peaked.
This cool down continued in March in the major cities, with home prices for the combined capital cities falling 0.2%, after having fallen 0.3% the previous month. In fact, six of the eight cities saw a fall in value this first quarter. As for annual growth, this slowed from 2% in February to just 0.8% in March.
While small lenders are entering the market with partner companies such as Lendi, tighter credit policies could be playing their part in the slowdown of property prices. It appears that it may be reducing investment demand already, at least in the largest of our capital cities.
What about home prices outside of the major cities? These were predicted to continue to enjoy growth, and it appears that the predictions were fairly accurate. These were 2.6% higher on the year, having edged up 0.4% last month.
It would seem that many of the experts have got it right, at least in the short term. The restrictions on lending appear to have done the trick, slowing down growth in the majority of country’s capital cities. However, we have only reached the end of the first quarter, so only time will tell how the rest of the year plays out.
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