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How worried should home owners be about the housing slump?

March 25, 2019 10:00 am by Upside

2018 was a challenging year for the property market, with the house price collapse causing property owners and economists to question if Australia’s housing bubble is about to burst. With less than optimistic figures to start out the New Year, the big topic on property investors’ minds is whether the downward trend will continue into 2019, or if the market will recover as the year goes on.

So will house real estate prices drop even more in 2019, and what does this mean for Australia’s property market?

A brief overview of the housing price crash in Australia

2018 was a challenging year for the nation’s property market, with house prices experiencing their sharpest drop since the global financial crisis. According to data by CoreLogic, house prices fell 6.1% across the nation’s capital cities in 2018, with prices in Sydney falling 8.9% and Melbourne falling 7% over a 12 month period. Hobart was the only capital city in the country that saw strong growth in 2018 with an 8.7% increase, and Canberra experienced a modest 3.3% growth.

According to Tim Lawless, CoreLogic’s head of research, Apra’s tightening of lending criteria in March, and the banking royal commission, are both significant contributors to the house price collapse in 2018.

Most regions around the country have reacted to tighter credit conditions by recording weaker housing market results,” Lawless said. “Buyers will be in the driver’s seat when it comes to choosing a property and negotiating on price.”

For Australian property owners, a drop in property prices is troubling because, unlike other countries, there was no last bubble to burst the Australian property market. The majority of homeowners and investors have never had to seriously consider “when will house prices crash?” - Australians have only known a positive housing market, with house prices experiencing a consistent upward trend over the past 25 years.

Looking to 2019: will there be a continued house prices crash in Australia?

For property owners, 2019 started off on a less than ideal note, with reports showing that the pace of the house crash only worsened in the tail-end of 2018. House prices in Sydney fell almost 1.8% in one month, bringing the city’s property values back to the level of August 2016, while Melbourne’s house prices dropped 1.5% to bring prices back to the same value as February 2017. In other capital cities, the news is even less optimistic: Perth’s house prices are back to the same level as they were over a decade ago in 2006, and Darwin’s house prices are back to 2007 levels.

These drops aren’t just affecting Australian homeowners – the housing price crash in Australia has caused a stir across the world, with Deutsche Bank identifying the house price collapse as one of the top 30 risks to the global economy in 2019.

While no one can predict the future, expects that the worst is still to come, with a potential 5% fall on the cards for the first half of 2019. Domain’s Property Price Forecast also predicts that house prices will keep falling in the first half of the year; however, the report is slightly more optimistic that Australian house prices may stabilize, with a national growth of around 1% expected in 2019.

However, regardless of these predictions, the direction of the market could go either way as the year goes on. Property owners and economists will have their eye on two major events that may play a big role in determining housing market trends in the second half of 2019: the Federal Election and changes to tax policies, and the final results of the Royal Commission and its effect on home loans.

It looks like the Royal Commission’s findings shouldn’t affect lending criteria more for home loans, which is good news for homeowners as it means there should still be plenty of buyers out there who are able to borrow money. Interest rates are expected to remain low as well in 2019, with predictions that the RBA won’t touch the rates until at least the tail-end of the year or in 2020.

However, current polls indicate that Australia is in for a change in government with Labor tipped to win the Federal Election – if this is the case, Labor’s proposed policies around negative gearing and capital gains tax could cause property prices to continue to fall, particularly in Sydney and Melbourne.

What does this mean for homeowners?

For homeowners, 2019 is filled with uncertainty for the housing market, and all signs suggest that the slump will only get worse in the next 6 months. Homeowners who are considering selling property have one of two choices: sell now before house prices crash even more, or ride out the slump in hopes that prices will return to growth in the coming years.

For those who can afford to wait and see, it may be worth holding off on a sale to see how the outcome of the Federal Election affects house prices, particularly as the market is expected to stabilize in the coming years. However, for those looking to downsize or upgrade, selling now could be the ideal option to minimise risk and losses, especially if the property has seen a significant growth in value and will return give a profit if it’s sold now.

Regardless of what happens, it’s more important than ever for property owners to stay on top of the latest market trends, in order to keep up to date with how the housing price crash is affecting property values across capital cities.

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