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Will house prices crash in Australia?

September 30, 2019 10:00 am by Upside

For years now, real estate pundits have speculated that the Australian housing market has been propped up by low interest rates, tax breaks and unsustainable lending practices. Those who share this view believe mortgage stress and overinflated prices will lead to Australian property prices falling in a downward trajectory similar to the US housing bubble.

Price falls in Sydney, Melbourne and other capital cities throughout late 2017, 2018 and early 2019 lent credence to the prediction that a major housing price crash could be on the horizon.

But CoreLogic’s latest Hedonic Home Value Index reports that house prices in Sydney and Melbourne – the two capital cities with the largest price drops – rose over the month of August by 1.6% and 1.4% respectively. Australian capital cities also recorded a combined capital growth of 1% over the quarter to 31 August.

So, for those wondering, “When will house prices crash?”, the answer may not be as clear as some pundits would have us believe – and they may not crash at all.

Do falling property prices really signal a housing crash?

While Sydney and Melbourne are showing signs of recovery from the 2017-18 slump, Brisbane, Adelaide, Perth, Darwin and Canberra all recorded slight price drops over the June-August quarter.

But do moderate fluctuations in housing values spell doom and gloom for the Australian market, or are they simply part of the natural property market cycle?

Shane Oliver, chief economist and head of investment strategy and economics at AMP Capital, told that recent price falls are an indication of a property market correction rather than a looming crash.

“I’m loathe to even call it a property crash,” he said. “So far, Melbourne is down about 10% and Sydney is down about 14% (over five years). So, to put it into perspective, prices are really just back at 2015 levels and on track to go back to 2014 levels.”

“We had many years of very strong gains. We’re giving back some of that.”

Dr. Oliver puts recent price falls down to a “perfect storm” of factors, including tighter lending conditions, a surge in housing supply and decreased foreign investment.

Conversely, there are a number of factors likely to drive market buoyancy over the coming months and years:

Commenting on the housing value results for August, CoreLogic research director Tim Lawless said in a statement that these factors are helping drive a more long-term recovery of the Australian property market.

“It’s likely that buyer demand and confidence is responding to the positive effect of a stable federal government, as well as lower interest rates, tax cuts and a subtle easing in credit policy,” he said.

“While the ‘recovery trend’ is still early, it does appear that growth trends are gathering some pace, particularly in the largest capital cities.”

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