Is the Australian Property Market as Dire as We’re Led to Believe?

Are Australian property prices finally going to fall, or are they a lot stronger than we’re lead to believe?

For quite some time now we’ve been told by economists and experts that the housing market will fall. When that’s supposed to happen? Nobody can say for sure. However, you have to consider that it may not happen at all.

It appears that Westpac’s economic team is swimming against the school. They don’t believe that the house market is in for a steep fall.

With the slowdown of property prices continuing, especially in major cities like Sydney and Melbourne, many expected that a slump in housing prices was on the cards. Yet it seems, due to low mortgage arrears, Australia’s property market may be sturdier than previously thought.

Westpac has labelled the conditions of the housing market ‘benign’. As long as Aussies aren’t falling behind on payments, we are unlikely to see a rush of concerned sales.

The ABC reported that according to the Westpac study:

Many of the factors behind the slowdown [are] still in place — macro-prudential restrictions, weaker foreign buyer demand, stretched affordability, and a lift in new dwelling supply — and policy unlikely to provide a boost.

The study chose to focus on arrears to figure out if home owners would be forced into selling their properties. The report found that we are not in the same dire situation as the US was during the GFC.

When the share of urgent or distressed sellers in a market rises, this often acts as a catalyst for market-wide price declines — this dynamic, coupled with massive physical oversupply, was a key feature of US housing slump in 2007–09.’

Statistics provided by Westpac are heavily in favour of property market stabilisation rather than collapse.

By the end of 2017 the arrears rate was 1.2 per cent, down slightly from 1.3 per cent at the end of 2016

  • Arrears were in line with the long-run average
  • Arrears well below historical peaks of 1.7-to-1.9 per cent.’

While New South Wales, especially Sydney, has seen a meteoritic surge in house prices in recent times, they have the lowest mortgage arrears nationally, at 0.8%.

Both NSW and Victoria are known for their high house prices, with their state capitals number one and two respectively in house prices.

According to Westpac:

South Australia and Tasmania have both seen the most pronounced declines in arrears over the last year, the former from a high start and the latter to a 12-year low.

However, both Queensland and Western Australia are above the national average, at 1.5% and 2.2% respectively.

This could be a result of the decline in the mining sector, possibly compounded in WA by a tough housing market in Perth. Adding to these difficult conditions are ‘declining prices and an overhang of stock.’ 

Both the National Australia Bank (NAB) and the Australia and New Zealand Banking Group (ANZ) have recently predicted that the Reserve Bank of Australia (RBA) will hike interest rates once this year, in November, rather than twice as they forecasted at the beginning of the year.

Although, as reported by Domain, NAB still expects two more interest rate hikes in May and November 2019.

NAB and ANZ’s predictions could also be factoring in last week’s low wage growth results for the final quarter and the overall year for 2017.

Wage growth has stagnated while household costs have surged. That could very well be the reason behind NAB and ANZ’s decision to forecast only one interest rate rise this year.

Yet even with low wage growth and low interest rates, Australian’s don’t seem to be in as dire a situation as has been predicted for them. With arrear rates so low, Australians borrowers aren’t being forced to sell their homes. In turn, the Aussie property market it a lot sturdier than anticipated, which bodes well for all Australians.

This week in Money Morning

In Monday’s Money Morning, Harje juxtaposes air and rail travel. Air travel is one of the most common forms of travel from country to country and state to state. Especially in Australia, where we’re basically cut off from the rest of the world and surrounded by ocean. And, after decades as a stereotypically terrible investment, airlines may finally be turning around. However, proposed new technology could turn that on its head. To learn more, click here.

In Tuesday’s article, Harje debates the possibilities of a 25% US stock market drop due to the government selling off their bond yields. Such a drop in the US would obviously impact the Australian share market negatively. We’ve seen examples of that already this year. But as Harje explains, that doesn’t mean you should be trying to time an exit from the market. To read why, and how to prepare for Harje’s predictions for 2018, go here.

In Wednesday’s Money Morning, Harje brought up the topic of diversification. Many companies listed on the stock market have a wide range of businesses. While many consider more to be better, that isn’t always the case. To read more about diversification and its pitfalls, click here.

On Thursday, Harje discussed the differences between North and South Korea, and how far South Korea has progressed since the Korean War. South Korea has flourished, especially within the technology sector. As Harje explained in this edition of Money Morning, this thriving industry has introduced high performing stocks into the markets. To find out more about the secret of South Korean success, and another Asian market that could be headed the same way, go here.

In Friday’s Money Morning, Harje deliberates losses on the share market. And he uses Bill Ackerman’s pursuit of disqualifying Herbalife as the example. Now, Ackerman has finally given up on convincing people that Herbalife is a fraud. However, the example shows how being steadfast against something can cause you financial harm. As Harje explained in this edition, your best bet is to keep your head down and work hard. To find out more about Ackerman and his endeavours, click here.


Alana Sumic,
Editor, Money Weekend

Alana Sumic is part of the editorial team here at Money Morning. She contributes to bringing you Money Morning each day, along with all of Fat Tail Investment Research’s many other publications.

As the Editor of the weekend edition of Money Morning Alana brings you a summary of the news for the week, and her own take on the week’s most important story in markets. She is also a writer and editor for Fat Tail Investment Research’s political publication, The Australian Tribune.

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