Banks decisions to raise interest rates for investors, followed up by higher interest rates for owner-occupiers over the last three weeks, has dented market confidence raising question around a potential imminent property crash.
Fragile buyer sentiment was also likely knocked by the Reserve Bank’s decision to leave official interest rates on hold at 2.0 per cent for the sixth consecutive month in its November rates announcement, despite signs of a weakening economy.
Also read: Do Aussies think they're in a property bubble?
Even 70 per cent of Aussies think the property market is either in, or entering, a property bubble, according to a recent survey by the NSW division of the Australian Property Institute.
But Aussies should be comforted by the fact that experts on Australia’s property sector are confident there is no Australian property crash on the horizon.
Michael Yardney, director of Metropole Property Strategists points to a number of reasons why we won’t see major falls in home priced in our capital cities anytime soon.
Robust population growth, a healthy economy, a sound banking system, rising business and consumer confidence and a healthy level of household debt are just some of the reasons he doesn’t expect an Australian property crash.
“While immigration levels have dropped, we’re still growing at a faster rate than any other country in the developed world,” Yardney said.
“A healthy economy, that, while slowing a little, will continue to perform at a level that is envied by much of the Western world and will create jobs for anyone who wants one.”
The Australian culture of home ownership, with 70 per cent owning of paying off their own homes, also supports Australia’s robust property market.
Clive Warren, associate professor, property & project management at University of Queensland also agrees that while there is an element of uncertainty surrounding the market, strong growth, in Sydney and Melbourne in particular, leads him to believe Australia will not face a property crash.
“Even in Sydney and Melbourne where the growth has been, we might see some of the very top prices paid easing a bit but general if anything we will see a catch up period where there is little price movement,” Warren said.
At this stage with very low interest rates, although there are signs that the rate of growth in the market is slowing, Cameron Kusher, senior research analyst at CoreLogic, also doesn’t forsee any imminent significant downturn.
“How big would a downturn need to be to be considered a crash?”
“I don’t think there is a crash imminent but down the track as interest rates increase and affordability continue to get stretched, markets like Sydney and Melbourne, which haven’t seen a correction and have strong capital growth, have potential for a downturn,” Kusher said.
But he adds that what generally happens when prices fall is that they then track sideways for around 5-8 years, further suggesting it would be difficult to classify it as a property crash.
While sources agree that there is no avoiding the fact that property price growth will slow in 2016, there is still large demand for housing and if these Australians can’t afford to buy homes, then they will rent, forcing rental prices up instead anyway.
As for any ‘rapid’ property price crash in future, it will likely only occur if there is a dramatic change in policy, Warren said.
“This does depend somewhat on interest rates, but the RBA is still talking of easing and is a long way from increasing rates which would affect housing prices negatively – a change in tax rules such as removing negative gearing might result in a brief period of decline, but this is very unlikely.”
“With demand and low interest rates I don’t see the decline that some have predicted, what we might see is a return to more normal growth levels in most locations and perhaps a more stagnant period in Sydney and Melbourne due to the rapid price rises in recent months,” Warren said.