housing bubble

How Far Will Aussie House Prices Fall?

It’s too soon to call Australia’s tumbling dwelling prices a full-blown crash. But with house prices in Sydney and Melbourne falling in 2018, the picture isn’t rosy.

The pain looks set to continue in the New Year in most of the capital city housing markets, with prices in Sydney and Melbourne widely forecast for further falls in 2019.

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The correction continues

As reported by CoreLogic’s Fourth Quarter Housing Forecast Report and Moody’s Analytics yesterday, dwelling values are expected to drop as much as 6% in Melbourne and 3.3% in Sydney, due to declines in inner-city districts.

According to AAP, last year’s hawkish credit conditions resulted in Sydney’s housing market falling 5.8%, after its 2017 12.8% rise, whilst Melbourne values fell 0.1% last year.

However, it’s looking that apartment values in Sydney are set for a humble turnaround after a 2.9% decrease last year.

Moody’s Analytics economist Katrina Ell stated ‘Peaks and troughs in previous cycles have been steeper for houses, which in part reflects the difficulty in unlocking new supply; conversely, apartment supply tends to outstrip house supply in Sydney’.

A high level of supply has now come on line for apartments in the inner city and surrounding areas as well as dwellings in suburban areas via land releases and removal of some development restrictions — this will contribute to the forecast slowdown in 2018 and 2019.

CoreLogic’s latest Hedonic Home Value Index showed that over the December quarter, national dwelling values dropped 2.3% — the worst quarter-on-quarter decrease since 2008 — with most parts of Australia reporting a shaky feat as national values fell 4.8% in total for 2018.

Moody’s expects that over the next 12 months, house values throughout Brisbane will grow a gentle 1.2% this year, with durability in inner and west Brisbane balancing declines in south Brisbane.

Regardless of counterpoise commodity prices, Perth’s house values will possibly drop 2.8% this year, trailed by a recovery in 2020, due to growth in population.

Adelaide’s housing market will persist its steady run with a 2.6% rise this year.

Greater Melbourne house values are now 11 months into a correction, with the decline having reached its lowest level since the global financial crisis.

Melbourne’s inner east house values have sunk 12.5% from their July 2017 peak, whilst values in the city’s inner metro and south areas have fallen 8.3% and 11.3%.

Unnecessary credit constriction is to blame

In December last year, Christopher Kent, the Reserve Bank Assistant Governor blamed ‘unnecessary’ credit constriction for further threatening of a market that has been sliding since 2017.

Last month, the Organisation for Economic Co-operation and Development said that a burst housing bubble continues to be the greatest hazard to the nation’s $1.3 trillion economy.

Despite an economy floating towards its full potential, Moody’s has warned that declining wealth effects from the firm cooling of the housing market will became a greater burden.

Ms Ell said ‘Given that most of household wealth is in the relatively illiquid asset of housing, there would be greater systematic implications if debt repayment difficulties suddenly become a broader concern’.

For example, if unemployment were to rise, it would force many households to sell at once.

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Comments: 1

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  1. The houses in Australia will not fall bellow $850 000 median. If the crash is to happen, then the whole mirage of wealth will go. The 1929 crash and the consequences will, in hindsight, look like a picnic. We can’t drive and live in luxury indefinitely on credit. Oh, by the way, even that credit is the daughter of her Credit mother. Work that out…