Don’t freak out about falling house prices.
But avoid getting too excited about potential bargains, too.
The median price of dwellings (houses and units) has fallen 1 per cent in the past month, 7.2 per cent in the past year. In some places, the falls are even steeper, such as Sydney (13.8 per cent in a year) and Melbourne (9.3 per cent).
That would be worrisome if prices didn’t go up by 29 per cent in just 19 months as the pandemic caused a rocket-like surge in the amounts paid for homes.
Meanwhile, in areas outside capital cities, values went up by 42 per cent.
What the what?
No matter where the prices go – even if the falls continue – it is likely that several elements will remain constant.
- First-home buyers will struggle to accrue a deposit
- Rents will keep going up
- Governments will step in if there’s any threat of a substantial slowdown in house prices or the construction industry
Value falls
The median house price is in the middle. If Australia had 99 properties, ranked in order of merit, the value of number 50 would be the median. (If we used “average”, it would be frequently skewed up by the sale of a few mega-mansions).
We focus on the median house price in cities and regions because it’s a marker of where a place’s real estate sits. But it’s not the best marker.
You’d know from where you live that there’s not one housing ‘market’ but wildly disparate parts of even the same suburb.
The other element that the median price ignores is volume, the number of properties on offer for sale. When prices are low or falling, people only tend to sell for three reasons: death, divorce or moving to Denver. (And the last one has been a challenging option for most of the past few years).
But prices rise when the volume of properties in an area is limited. This lures more people to eventually sell and feeds into a rise in the median house price.
The new numbers from property data firm CoreLogic show broad falls that might have you sweating, but there is no need.
In every city and region, dwellings are still worth more than they were at the start of the pandemic in early 2020.
Unless you’re in a few particular groups falling house prices are acceptable.
Sympathy needed
Most would have sympathy for vulnerable groups.
People who bought recently are looking at falls compared to the value of what they paid. They might be worried because if a shock event such as death, divorce or unemployment caused them to need to sell, they’d probably lose money.
But fingers crossed that doesn’t happen. If they stay in it for years, they’ll likely ride out this bump, and values will keep rising.
Why? Because Australia needs more places to live. Not close.
On 2020 data, we’ve got 411 dwellings for every 1000 people. In Greece and Italy, that figure is over 550, in Spain, Germany and Finland it’s over 500. The average in the OECD group of similar economies is 468.
People who lied about their loans might be in trouble.
If someone tells a bank they earn more and spend less, they’ll likely get a loan too big to make the repayments on safely. If interest rates keep going up – and most economists believe they will – that will pile extra misery on people who extended themselves beyond what the banking guidelines were.
Rent pain
But you should be worried about the one-in-three Australians who rent and those struggling as inflation rips money out of the wallets of wage-earners.
According to the data, the cost of rent for a unit in Brisbane or Sydney jumped more than 15 per cent in the past year and 12 per cent for a house in Adelaide, Brisbane or Perth.
After international students and workers were forced out of the country in early 2020. Rents for apartments in the university-dense inner cities of Melbourne and Sydney plunged.
Now it’s rocketing beyond: inner Melbourne rents are up almost 30 per cent over the past year, and inner Sydney rents are more than 20 higher.
And that’s before a likely surge of overseas students after a policy change in China pushed people to complete their courses in Australia rather than online.
For renters, there are no substantial improvements to their rights on the political horizon. There are more competition for dwellings and wages that are barely moving while being eroded by inflation in the essential things you can only live with housing, food and fuel.
Homeowners might be distressed about a brief fall in the value of their assets, and if they sell now, they might lose money.
Given how tied our economy and politics are to housing, it’s unlikely the worst-case scenarios of price falls of 30 per cent or more could occur.
The content of this article provides a general guide to the subject matter. You should seek specialist advice about your specific circumstances.
Vogue Advisory Group – advising you on the status of the housing market and property investment
If you are using or thinking about using a financial adviser, now may be a good time to do so. As they can assist you with reviewing your financial goals and strategies and refining them if necessary.
That’s where Vogue Advisory Group can help. Our multi-disciplinary financial professional team provides a comprehensive suite of services, supported by our alliance partners, to provide trusted advice and deliver the transformation our clients seek.
If you are considering buying, selling, or investing in property, please contact us, and we can help ensure you have all the financial knowledge to make the best financial decisions.
