Has the housing bubble burst?

In some states the property market is up, while in others it’s down - if you’re confused by what’s really happening to Australian house prices, read on. 

Driven by falling markets in Sydney and Melbourne, national house prices fell 0.1% in May, according to figures from property analytics group Core Logic. For the year from 31 May 2017 to 31 May 2018, prices were down 0.4% marking the first annual fall since October 20121.

But AMP Capital’s Head of Investment Strategy and Economics and Chief Economist Dr Shane Oliver says despite the falls, talk of a property market crash is overdone.

Read on – or check out this short video – as Shane provides a property market update, explaining where the market is headed from here and why.

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Sydney and Melbourne

Prices in Sydney fell 0.2% in May, while Melbourne prices fell 0.5%. In Sydney, the median house price is now $871,454 while in Melbourne it sits at $717,0202.

And depending on whether you’re a buyer or seller in those markets, there’s more good or bad news to come.

“We expect prices in Sydney and Melbourne to fall another 4% or so this year, another 5% next year and to still be falling in 2020. Overall, Sydney and Melbourne are likely to see a top-to-bottom fall of around 15% spread out to 2020,” Shane says.

But in the other capital cities, where the housing markets haven’t boomed in recent years to the same extent as Sydney or Melbourne, the forecast is different.

Perth, Darwin and Canberra

Prices in Perth and Canberra were both down 0.1% in May, while Darwin prices were down 0.2%3.

However, all three markets are up for the quarter, and Shane says that prices in Perth and Darwin look to be at or close to bottoming, while Canberra is likely to see moderate price growth in the months to come.

Hobart

Still the star performer, Hobart property continued its upwards surge in May, rising another 0.8%. Prices there are up 12.7% for the year from 31 May 2017 to 31 May 20184.

“The Hobart market remains very strong and the boom in Hobart is likely to continue for a while yet,” Shane says.

Brisbane and Adelaide

In Brisbane property prices rose 0.2% in May, while in Adelaide they performed even better, up 0.5%, with Shane forecasting more moderate price growth to come for both of these cities5.

Regional areas v capital cities

Taken as a whole, the combined capital cities markets fell 0.2% in May, but regional locations are performing better – when combined, regional markets saw prices rise by 0.2% in May, with Geelong and Ballarat in Victoria, the Southern Highlands, Newcastle and Coffs Harbour in NSW and Queensland’s Sunshine Coast among the best performers6.

“Home prices in regional centres are likely to hold up better with continuing modest growth as, generally speaking, they haven’t had the same boom as Sydney and Melbourne and so offer much better value and much higher rental yields,” Shane says.

For more detail about property prices outside the major cities, check out our article: Where to buy property in regional Australia.

What’s driving the property market?

Shane says that a combination of factors is behind the falling markets, including: 

  • Investors, people looking for interest-only loans and borrowers with constrained incomes and high expenses finding it more difficult to get finance, as banks have tightened their lending criteria due to pressure from regulators,
  • Tougher restrictions being imposed on foreign buyers by state and federal governments, 
  • Rising levels of housing supply, and
  • Buyers with more realistic price expectations.

Shane says that interest rates are likely to remain at their current levels until 2020 but adds that with “home price weakness at levels where the Reserve Bank of Australia started cutting rates in 2008 and 2011, we can’t rule out the next move in rates being a cut rather than a hike”.

He says that unless interest rates or unemployment unexpectedly skyrocket talk of a property market crash has been overdone.

How we can help

If you’re looking to take advantage of market conditions to get into the property market or make your next move, check out our range of competitive home loans, or speak to your financial adviser to get help plotting your course. If you don’t have an adviser, our online search tool can help you find one in your local area.

1-6 Core Logic, Hedonic Home Value Index, May 2018.

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