Is the Housing Market Crash Already Happening?

For over a decade, Australia’s housing prices were on the up. They soared higher, in absolute terms and in comparison to incomes, than Aussie real estate markets had ever been.

In Sydney, the median house price reached $1,000,000. In Melbourne it wasn’t much better, sitting at $800,000. Other cities in Australia also saw astronomical house prices.

But in 2018, it’s been a slightly different story. 2018 has seen a decline in median house prices across all of Australia. In particular, Sydney and Melbourne.

CoreLogic, a property data and service management company, publishes a monthly home price index. The August release details a price fall across all national capital cities, down 0.4% in August. Prices are down 1.2% over the past three months, and 3% for the past year.

In the past three months, Melbourne’s prices have declined by 2%. In Sydney, over the past year, they’ve declined by 5.6%.

At the end of August, CoreLogic released a graph to show the decline in house prices, you can see it below:

Index results as at August 2018 08-09-18

Source: CoreLogic

[Click to open new window]

As you can see, Melbourne led the charge in declining house prices last quarter.

Why are Aussie house prices dropping?

So why has Australia seen a decline in prices over the past year? Well CoreLogic’s head of research, Tim Lawless, told the ABC many factors had contributed to the downturn:

Foremost of which is the tighter credit environment which has slowed market activity, especially amongst investors

Fewer active buyers has led to higher inventory levels and reduced competition in the market.

Collectively, these factors have been compounded by affordability challenges, reduced foreign investment and a rise in housing supply.’

Another factor showing that prices are on the decline is the fact that sellers are now spending longer in the market.

In CoreLogic’s report, Lawless wrote:

Advertised stock levels are already 7.6 per cent higher than the same time last year across the combined capitals, despite a 5.7 per cent reduction in ‘fresh’ stock being added to the market

The rise in inventory is simply due to a lack of absorption; with fewer buyers, homes are taking longer to sell.’

And tighter lending standards are likely to have an increasing impact, especially in the top end of the market:

In the higher value cities like Sydney and Melbourne we’re seeing typical dwelling prices remain more than 8 times higher than median household incomes, suggesting tighter credit conditions for borrowers with a high debt-to-income ratio will likely impact on demand more in these cities over others.’

So, if we look further into 2018, what are the prospects for those looking to buy and sell?

Spring is usually the busiest time of the year in the housing market. And coming into the spring quarter, Lawless believes that ‘…vendors will need to be realistic about their pricing expectations’.

Furthermore, the pending federal election and increases to mortgage rates could also see house prices affected.

With housing markets threatened by high household debts, Lawless doesn’t see conditions working out in vendors’ favour:

With household debt at record highs, borrowers are likely to be sensitive to small movements in the cost of debt and this upwards shift in mortgage rates is a negative for housing market conditions.’

CoreLogic’s head of Australian research, Cameron Kusher, also believes that sellers need to change their expectations. Many selling believe we’re still at the height of the housing bubble, but as we’ve seen in 2018, markets are weakening, which may suggest the bubble could be on the verge of bursting.

For sellers, they really need to be very realistic about the market … and set appropriate prices for the market, which means not prices that they would’ve set 12-18 months ago.’

Kusher also had this to say:

For potential buyers, you don’t really need to be in a hurry in this market, there’s lots to choose from, there’s not as much competition out there in the market.

Be aware that the cost of housing is falling, so if you hold off you might be able to get that property or a similar property at a lower price point a little bit further down the track.’

Australia has been in a housing bubble for a number of decades. But the past decade has seen Australian house prices sky rocket. Now, we may finally be seeing the end of the bubble, and the start of declining house prices.

Kind regards,

Alana Sumic,
Editor, Money Weekend

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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 Port Phillip Publishing’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 Port Phillip Publishing’s political publication, The Australian Tribune.

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