…is one of the hardest questions to answer and a question too many are trying to predict.
Spend a bit of time looking into market predictions in Australia and you can find someone who can confirm anything you want to believe. Don’t like what figures from the past decade say about house prices? Just broaden your scope to 20-30 years and you’re likely to find data to support any hypothesis you want to make.
Amid all the predictions and debate, one thing is clear: it is now a buyers’ market. Our weekly clearance rates have been telling you for some time that the honey-sweet days of 80+ per cent clearance rates are not coming back any time soon. A challenge for vendors, but good news for buyers. There are, of course, no surprises here, as markets are cyclical, and a fall in house prices in the major markets was always expected. The extent of these falls is not quite so clear, as many see external forces influencing prices more so than in previous dips. What does this mean for 2019 prices?
By the end of December 2018, Sydney house prices were 10.03 per cent lower than the year prior, and Melbourne’s were down 9.12 per cent. Perth also saw falls (-4.32 percent), while the rest of the country saw modest rises, apart from the high-performing (and beautiful!) Hobart, which saw an annual increase of 8.31 per cent for house prices. Let it be said, Australia is finally recognizing Tasmania for the jewel that it is, and investors are not being shy in displaying that interest.
Firstly, why have prices across many major Australian markets (especially Sydney and Melbourne) fallen? The answer would and has filled a book or two. It wasn’t just the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (RCMBSFS?), but a host of influencing factors.
Without going into them in too much detail, and aware that the list extends beyond these:
- declining international investment in Australian markets;
- APRA’s macroprudential measures to reduce the share of interest-only loans in the market;
- a rise in the share of undetached new dwellings being built (apartment buildings vs. detached houses);
- a decline of credit growth since 2015;
- international economic and political insecurity;
- low wage growth;
- growing underemployment (despite decreasing unemployment). In October 2018, the Bank of England’s Chief Economist, Andy Haldane, blamed the rise of job insecurity and underemployment for a decade of lost wage growth;
- buyer adjustment to tighter lending practices
- higher housing supply in the major markets;
- consumer insecurity.
Looking at last year’s trends, and with little having changed since then, buyers should expect to see prices in Melbourne and Sydney in 2019 continue to fall, as they have been declining at an accelerating rate. However, the diversity of house price trends across the country show that 2019 will be a mixed bag for house prices. There is increased capacity for negotiation for buyers, due to the increase in supply, so even in markets that are seeing increasing rates, make sure to research supply in the area as well as average days on market to inform how you negotiate your price.
Projections of further RBA cash rate cuts in 2019/20 also reveal the potential for a slowdown to the price falls we have seen, as investors become more confident to enter the market, while buyers become more accustomed to tighter lending from the big four banks.
Prices may be influenced by a change of government this year, as possible changes to negative gearing and stamp duty concessions for new builds have been a policy point sold by Labor in the lead up to an election.
Prices are unlikely to ‘crash’ across the national market, especially due to the performance of cities and regional areas outside of Melbourne and Sydney. With this in mind, buyers who are looking at 20-30 year investments may not necessarily benefit from waiting to see where the bottom of the fall ends up, as any rise to interest rates may offset an advantage they can wrangle if they secure themselves fixed-rate loans.
House prices have fallen most within the higher deciles of the market in both Melbourne and Sydney, but buyers in these major markets should be aware of significant upcoming supply for apartments expected for 2019/20, and the influence these may have on lowering dwelling values in these lower deciles.
In other words, it is a great time to buy! For those buying within the lower price range, there may be a greater incentive to buy rather than wait as prices may not fall to such a degree as in more expensive markets. As always, do as much research as you possibly can to understand local and national markets, so that you can confidently enter negotiations.