Recently, everyone is more concerned about these key questions, such as “What is the prospect of the real estate market of Australia in the second half of the year and in 2023?” “Will Melbourne house prices continue to fall?” “Should I buy a house now or shall I wait for the price to hit the bottom?
Now that the housing market has moved from an upswing characterized by a robust and broad-based rise across Australia’s regions, the property cycle has entered an adjustment phase that can best be defined as multi-speed. On the one hand, Australia’s two major cities, Sydney and Melbourne, are seeing slightly declining house values, while Brisbane and Adelaide are experiencing double-digit annualized increase.
Melbourne property values fell by 0.1 percent, marking the fourth month in a row that housing values were level or fell. The deterioration occurs when advertised stock levels grow to 8% over the previous five-year average in March, but expected sales activity falls to roughly 9% below the five-year normal. Buyers are progressively regaining some power as inventory levels rise and competition falls. Homes are selling roughly a week slower than last year, vendor discounting rates have increased somewhat, and auction clearing rates have declined to frequently fall below 70%.
While most of this is attributable to external circumstances that are projected to diminish over time, the RBA’s high starting point for inflation and tight labor market at home means that interest rates will be raised rapidly, from COVID ’emergency’ lows to more ‘normal’ levels.
And so this is what is causing many experts to predict a house market crash. But, according to the analysis of more participants, the house price is not as “fragile” as some people see it, there is no “collapse” on the spot. To put it simple, a comprehensive and reasonable analysis needs to be carried out with a dynamic perspective.
Please remember that interest rates is simply one of several factors influencing property values.
Under a “crashed” property market, sellers could be forced to sell their house and no one on the opposite side of the transaction to buy their homes, which means they must give their houses away at steep discounts. And the only reason they would be compelled to sell and give up their home is if they are unable to make their mortgage payments. This bad situation will only occur when:
Sure, the speed and magnitude of interest rate tightening will influence what occurs next in our property market, but as you will see below, there are still many positive aspects underlying our housing markets, indicating that the property crash predicted by Property Pessimists is unlikely to materialize.
And we know from recent experience that neither the banks, our governments, nor the RBA want to see a housing market implode, preferring to help mortgage holders rather than seize their houses. The entire value of Australia’s residential property market just increased to $9.9 trillion, following the greatest annual growth rate on record in 2021. Residential property prices surged 23.7 percent through 2021, implying that the combined worth of property owners’ wealth increased by $2 trillion in only one year!
There are predictions that property prices will fall by 10 to 15 per cent, and there are even Australian financial review columnists talking about a 30 per cent drop in the Australian property market. Will these gloomy “predictions” come true? ? In fact, a decline of this magnitude has never happened ever in Australian history. Not during the 1990s recession, not during the global financial crisis, and not during the 2017-18 credit crunch. Therefore, given the present status of the economy, our financial health, and property markets, there is no reasonable reason to believe that such a drop should occur today.
You may recall that at the outset of the Covid-19 pandemic, economists from Australia’s four largest banks predicted that the housing market would collapse, with house prices plummeting by 10 to 15 per cent. The result speaks the opposite! So they revised their forecasts, suggesting that interest rates would rise faster than initially forecast to cool the housing market throughout 2022, before property prices fall in 2023.
No need to overthink, the Australian real estate market is basically unlikely to usher in a so-called crash. Price growth may be slowing, but there will be no “collapse” in the future!
The reasons are as follows:
Reference: ”Latest property price forecasts for 2022 revealed. What’s ahead in our housing markets in the next year or two?” by Michael Yardney