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An in-depth look at the state of the Australian property market

June 24, 2019 10:00 am by Upside

Across Australia’s capital cities, property values have fallen by 8.49% over the past 12 months, bringing house prices back to 2016 levels and prompting some to speculate that further declines are to be expected.

But despite low consumer confidence, changing market conditions are prompting a slowdown in price drops and signalling a potential turnaround for the Australian housing market toward the end of 2019.

Australian house prices at a glance

The latest monthly home value index report from CoreLogic shows prices fell an average of 0.49% in May, with regional areas declining a smaller 0.2%. Darwin and Perth led the declines, with prices dropping 3.18% and 0.94% respectively last month. Minor monthly declines were recorded in Brisbane and Canberra, while Adelaide and Hobart saw mild increases.

Although Sydney and Melbourne also saw monthly declines of 0.38% and 0.55% respectively, these are relatively moderate figures compared to previous monthly drops over the past 12 months.

The easing of price drops in Sydney and Melbourne aligns with the recent uptick in auction clearance rates in the two cities, which are now averaging clearances well over 60% - a major improvement on the 45% average recorded at the tail end of 2018.

CoreLogic's Cameron Kusher told ABC News that the slowing price falls in Sydney and Melbourne may reflect shifting market conditions.

"We have been seeing the rate of decline on a monthly basis slow," he said. “We have seen the prospect of changes to negative gearing and the capital gains tax now gone, we see that APRA is now talking about changing some of the serviceability limits, and that's positive for the market.”

What’s driving the property market turnaround in Australia?

Although the downturn hasn’t reached its end, there are a number of factors contributing to a potential turnaround in housing prices toward the end of 2019 and into 2020.

Cuts to the RBA official interest rate

The Reserve Bank of Australia cut the official interest rate to a record low this month – just 1.25% – and several of Australia’s big banks now predict the RBA will keep slashing interest rates until they fall to 0.75%.

A decrease in the official interest rate signals mortgage interest rate cuts, which will make it more affordable for homebuyers to pay off a mortgage. This is likely to incentivise those who are on the fence about buying to take the plunge at a time when interest rates are historically favourable.

Proposed changes to APRA lending restrictions

A proposal from banking regulator APRA is seeking to undo a key restraint placed on lenders during the height of the property boom. The rule stipulates that borrowers must be assessed on their ability to manage repayments with 7.25% interest rates.

The proposed change would allow lenders to stress-test borrowers at an interest rate just 2.5 percentage points above the prevailing mortgage rate – currently about 4% – meaning borrowers taking out a new home loan would be able to borrow tens of thousands of dollars more. This has the potential to make market conditions more appealing for buyers, particularly first home buyers who without limited borrowing capacity.

Government incentives for first homebuyers & investors

The Morrison Government has announced its plan to introduce the First Home Loan Deposit Scheme, which will help eligible first home buyers purchase a house with a deposit as low as 5%. Under the scheme, first home buyers could save around $10,000 in Lenders Mortgage Insurance. The scheme is designed to encourage a new wave of buyers while protecting the value of homes and stimulating the property market.

The Coalition’s win at the federal election also means the Labor Party’s plans to limit negative gearing to new housing from 1 January 2020 won’t go ahead, and the proposal to halve the capital gains tax discount for investors is now also off the table.

Although it remains to be seen how the market will react, some experts speculate that the Coalition holding power will increase confidence in the market.

“The stability of a familiar government… will boost confidence in the property market and encourage vendors and buyers to reengage,” LJ Hooker’s head of research, Mathew Tiller, told Smart Property Investment.

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The market may be turning. If you're thinking of selling, now could be a good time to see what your property may be worth. Get a free home appraisal from your local Upside agent and find out the current trends in your area, and how it impacts where you stand in the market!


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