Is Property Growth Starting to Slow Down?

The Reserve Bank of Australia (RBA) lowered rates to an all-time low earlier this month. Yet a cut was thought to have had little effect on the housing market in general. Glenn Stevens, Governor of the RBA, thought that tight regulations were a big enough deterrent. Potential buyers are finding it much hard to secure their finances compared to the previous generation.

But is Stevens right; will the property market continue to idle?

Scaring graphs for property investors

Just last month an article published by Domain.com.au stated that Australian property price growth might soon fade. The article used various graphs to symbolise the inevitable slowdown of property growth. These graphs covered variables like consumer confidence and the supply of dwellings.

But there are just two graphs I’d like to show you. The following graphs show the current stock of houses and trend of rent prices.

Oversupply is around the corner

Source: Domain.com.au

Rents in most capital cities are declining or flat

Source: Domain.com.au

Both graphs might seem a little intimidating if you have just bought your first home. I say that because they seem to tell you that property prices will soon drop.

The first graph shows the number of dwellings across Australia. As you can see, the amount of dwellings coming onto the market is increasing sharply going into 2017.

The simple law of supply and demand says that an excess supply of property will invariably decrease prices. However, I doubt this will be a systemic problem across the whole market. Most of these new dwellings coming onto the market will largely be apartments in and around CBDs.

So its likely Australian property growth, as a whole, will be dragged down. However, it doesn’t mean you can’t find great investment opportunities in the market.

What I’m alluding to is the stability of housing prices. You’d be hard pressed to find new houses being built just 5–10 minutes out of the CBD. And if you do then they’re probably a millionaire’s pet project.

While apartments could be in excess supply, houses close or just outside the city rims will not experience the same supply glut.

So the new dwellings coming onto the market might change what investors buy, but it won’t make buyers disappear.

The second graph shows that rents in most capital cities are declining. And if rents are falling, there’s usually either less demand for rented dwellings or the supply of rented dwellings is in excess.

In our present case the latter is probably true. With more apartments and homes coming on the market for rent, this competition has forced many landlords to drop prices.

But can it really be said that ‘Australian’ property growth is heading for a cliff?

The latest news from CoreLogic

According to CoreLogic, one of the most reliable property data researchers, more homes are now selling for $1 million than ever before. In an article published on 22 August, CoreLogic looked at the spreading values of dwellings across Australia.

Over the 12 months to June 2016, 14$ of all house sales and 7.3% of all unit sales were at a price of at least $1 million. To put these figures in perspective, just five years ago 7.5% of all house sales and 4% of all unit sales were within this price range,’ the article stated.

House and unit sales of 1M

Source: CoreLogic

But as you can see from the graph above, both house and unit sales have dipped slightly. So does this mean we will start to see more houses drop out of the million dollar price range?

Obviously, no one knows. If they did, you could play the property market to your advantage and sip cocktails of the coast somewhere in Spain. However, who’s to say property prices won’t maintain the tremendous climb.

I just want to point your attention to the table below. It is a tabulation of the graphs above. But, this way, we can specifically see the percentage climb from decade to decade.

House and unit sales of 1M capital

Source: CoreLogic

Houses sold for at least a million dollars in capital cities has jumped from 4.7% to 20.9%. Sure, inflation has been a factor over this 10-year period. However, who’s to say that more houses won’t make it into the million dollar club?

Apartments might be over supplied, but I suspect housing prices will continue growing into the near future.

Härje Ronngard,

Junior Analyst, Money Morning

PS: Most people think great deals in Aussie property are already all gone. This is the worst attitude to have. Why would you take financial advice from some self-proclaimed guru? Instead, why not do your own research. Take control of your financial future. But where do you start?

If you’re interested in investing in property, check out Money Morning’s property expert Callum Newman’s report ‘Australian Real Estate Game Plan’. In the report, Callum reveals the eight letter word that really drives property values. It’s the ultimate guide to help you start your future property plan, and it’s free!

To get your copy of Callum’s report, click here.


Money Morning is Australia’s most outspoken financial news service. Your Money Morning editorial team are not afraid to tell it like it is. From calling out politicians to taking on the housing industry, our aim is to cut through the hype and BS to help you make sense of the stories that make a difference to your wealth. Whether you agree with us or not, you’ll find our common-sense, thought provoking arguments well worth a read.

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