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Answering Four Key Questions About Australia’s Cooling Market

By Silvia Wei

During January 2018 the average Australian home value fell by 0.3 per cent, and Sydney’s dropped by 0.9 per cent, according to CoreLogic. With those numbers in mind it seems the housing market may in fact be cooling for now.

The media coverage of this has tended towards hyperbole, with many publications even foretelling a dramatic crash. Is that frightening forecast coming true? Is this drop in prices something that we should be worried about?

1. Should we be worried about falling house prices?

No. Generally speaking a gradual decrease in house prices is not something that most Australians should be worried about (even those who own real estate). That’s because property markets are cyclical, and there are always troughs following long periods of increase.

However, house prices almost always trend upwards in the long run. That means even if your home’s value decreases now, in the future it’ll increase again and you’ll end up back where you started.

Reserve Bank data supports this notion, showing that in the 30 years to 2015 house prices all around Australia increased by over 7 per cent per year. During this period there were lows, just like we’re experiencing now, but in the end everything still went upwards.

2. Can capital gains still be found?

Yes. It may require a little more effort than it did three or four years ago, but if you’re after an investment it’s still possible to find a property that will increase in value over the short and long term. For example, if you’re willing to go south, Hobart has experienced value increases of 18 per cent over the year to January, according to CoreLogic.

As a whole, regional areas outside of the capital cities saw their values increase by 0.2 per cent in January alone, indicating that capital gains can be found in regional areas. Fast growing towns near large centres like Ballarat in VIC or Wyong in NSW are great places to start looking, despite being a little small and far flung.

3. Where are the risky areas of the market?

One of the best ways to spot risky markets, and property that’s unlikely to appreciate in value, is to identify areas where dwelling oversupply is most prevalent. A recent research paper published by the Australian National University found that as of June 2017 the surplus of dwellings in Australia could be as much as 164,000.

This oversupply is most prevalent in Queensland, which has a dwelling surplus of close to 60,000 – most of which is most likely made up of apartments located in Brisbane centre. Victoria is also oversupplied, according to the research paper, with a dwelling surplus of over 40,000. Similar to Brisbane, many of these oversupplied dwellings are apartments near to Melbourne’s centre.

The research paper also identified Western Australia as an area with a surplus of properties. Much of this surplus was created in part by the mining boom, in towns where the population swelled then quickly fell when the boom period came to and end.

On the other hand areas on the outer fringes of large capital cities, such as Melbourne and Sydney, were identified as having dwelling shortages. This may indicate that property in these locations will increase in value over the long term.

4. Should I put off buying a home during this period?

No. If it’s the right time for you there’s no reason why you shouldn’t buy a property now. If you wait for better market conditions you may end up waiting for years. However, it never hurts to be cautious when making such a big decision, particularly when you’re buying in an uncertain market.

To minimise risks associated with buying property:

  • Buy well within your limits and keep money aside for unexpected costs.
  • Speak to a mortgage broker to make sure your home loan is structured well.
  • Buy with the help of a real estate agent who knows the local area well.
  • Do your own research, and find an area that’s likely to grow in future.

If you’re careful and get all the expert help you need, you should have no reason to worry about the market. Instead of delaying and watching prices go up and down, get the ball rolling on your property aspirations and get in touch with a local real estate agent you can trust.

Source: raywhite.com

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