Yahoo Finance Australia faces the biggest and longest property decline in 40 years
Home values across Australia’s largest capital cities have been falling since they peaked in late 2017.
National dwelling values fell for the 17th consecutive month in March 2019 however there was a moderation of the rate of decline in house prices, the -0.6 per cent monthly fall was the smallest since October 2018.
However it looks like this will be the biggest and longest national decline in home values for almost 40 years (or since records began in 1980).
Consumers have lost confidence.
First buyers went on strike, now sellers are holding back unless they really have to sell.
And while the property markets have started 2019 with a positive note, with more interest from buyers, auction clearance rates rising, the banks chasing more business another hurdle has been put in our way.
A federal election and elections create uncertainty and when there’s uncertainty buyers put their hands in their pockets.
What’s happened in the last month?
According to Corelogic data, over the last month, combined capital city values fell by -0.7 per cent while the combined regional markets recorded a -0.4 per cent fall.
In March 2019, dwelling values were lower across all capital cities except for Canberra where they were unchanged and Hobart where they increased.
Over the past year, national dwelling values have fallen by -6.9 per cent which is their largest annual fall since February 2009. Combined capital city dwelling values were -8.2 per cent lower and combined regional market values were -2.1 per cent lower.
While the current slump in property values resemble those in 2008 during the Global Financial Crisis, this time round our economy is sound, jobs growth is strong, unemployment rates are at historic lows as are interest rates.
In other words, the property market fundamentals are sound, yet the credit squeeze and the continual conveyor belt of negative media has caused a crisis of confidence.
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The upper end of our markets are suffering most
As usually happens when the market turns, the higher end of the property market suffers more.
This is really an area of discretionary spending.
Maybe you don’t need to upgrade your $5 million home to that $7 million mansion at the moment.
In due course the cheaper, more affordable areas will also suffer as wages growth is likely to be low in these suburbs.
Our rental markets are doing it tough
Rental markets continue to trend lower however, however rents do tend to lift at this time of year.
National rents were 0.3 per cent higher over the month and 0.4 per cent higher over the past year which was their slowest annual rate of growth on record (since CoreLogic started collecting data in 2005).
Rental yields have continued to lift from their record lows as rental growth outpaces value growth, however yields generally remain well below the long term average in most cities.
Other market indicators:
Vendor metrics have generally softened, with the number of days to sell a property and vendor discounting rates trending higher while auction clearance rates are higher than they were late in 2018 but much lower than a year ago with volumes also much lower.
Vendors seem to have got the message that it isn’t a great time to sell, with fewer new listings being added to the market than over recent years, while total advertised stock levels are tracking much higher, due to a slower rate of absorption.
Population growth, one of the big drivers of our property markets has eased over the twelve months ending September 2018, as both the rate of net overseas migration and the rate of natural increase fell.
Auction clearance rates, a good indicator of market sentiment in our big capital cities have been stronger this year, albeit on lower numbers of properties taken to auction
Dwelling approvals are trending lower and expected to fall further, despite a big rebound in unit approvals in February 2019.
We’re experiencing a credit squeeze with APRA’s macro-prudential controls still restricting lending. In fact, housing credit growth over the year to February 2019 was at an historic low level.
Housing finance data and credit aggregates highlight the slowdown in mortgage demand with both owner occupier and investor demand falling.
Investors are on strike with investor activity fading in part due to the “credit squeeze” the banks are putting on them
On the other hand, first home buyers are back in the market
Official interest rates remain at 1.5 per cent, however we’re likely to experience 2 cuts in rates before the end of the year.
THE BOTTOM LINE…
We’re clearly in for interesting times in property, with moderate price growth in some locations and virtually no growth in others and falling prices in yet others.
And our markets are likely to take a breather over the next month due to the Easter break, school holidays and the election campaign.
Currently Australia’s property markets are very fragmented, driven by local factors including jobs growth, population growth, consumer confidence and supply and demand.
This makes it an opportune time for both home buyers and investors to buy property at a time when they’ll face less competition.
Remember that our property markets are behaving as they always do and some of the best profits are made by investors at this stage of the cycle.
That’s because these downturns are only temporary, while the long term increase in value of well located capital city properties is permanent.
However correct asset selection will be more important now than ever, so only buy in areas where there are multiple long term growth drivers such as employment growth, population growth or major infrastructure changes.
Similarly, suburbs undergoing gentrification are likely to outperform.
Michael Yardney is a director of Metropole Property Strategists, which creates wealth for its clients through independent, unbiased property advice and advocacy. He is a best-selling author, one of Australia’s leading experts in wealth creation through property and writes the Property Update blog.
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