As we enter the New Year, it’s a good opportunity take a look at how the property market performed in 2017.
According to CoreLogic figures, the median dwelling value for the combined capital cities rose 5.5% over 2017, which is down from the 10.9% growth seen over 20161.
This stagnation in property price growth has led some market commentators to suggest that this is the beginning of the end. Some have even gone so far as to suggest we could soon see a property price crash across some of the bigger markets, notably Sydney and Melbourne.
The reality is, property prices are merely stabilising after a few years of runaway growth.
Furthermore, this stabilisation is something we have long expected.
Significant changes have been made to investment lending policy in recent months. Moreover, interest rates have been sitting at historical lows for well over 12 months and will continue to sit at historically low levels for some time yet. Both of these factors combined have helped take some heat out of the market.
And while the heat has started to come out of the market, there are no signs to suggest a property crash is on the radar in Australia today or tomorrow.
For a crash to occur in the housing market, there would need to be a number of economic factors at play.
First, supply would need to significantly exceed demand. Secondly, the cost of borrowing money would need to rise rapidly in a very short period of time, and unemployment would also need to reach dramatically high levels.
Moreover, there would need to be a large number of people looking to liquidate their properties at the same time.
If all those factors were to occur, a crash could be a possibility. But, based on how our economy is travelling at the moment, it’s fair to say that we are not in for a crash.
According to the Australian Bureau of Statistics (ABS), Australia’s population grew 1.6% over the year to March 20172 – which is significantly higher than other developed nations.
In total numbers, our population grew by 389,100 over the past year, and all of those people need somewhere to live. If we want to cater to our growing population, we need to build more properties, and that is exactly what we are doing.
So, supply and demand are working in good kilter with one another. At the same time, interest rates are low and we expect them to stay lower for longer. Meanwhile, the unemployment rate is trending downwards, hovering around 5%3.
When you consider all of the above economic data, there’s nothing to suggest that a property price crash is in our near future.
In fact, the opposite is true. At Mortgage Choice, we expect the property market to remain relatively robust.
Prices will stagnate, but they certainly won’t tumble. Interest rates will remain low, which will help to keep the cost of borrowing at affordable levels. Finally, ongoing changes by the Australian Prudential Regulation Authority (APRA) will help to reduce the level of international property investors coming into the market, which should help to keep property price growth at controllable levels.
If you have goals to purchase a property or refinance your home loan, now’s a good time. In fact, there may never be a better time.
So to make sure you start your New Year off right, call your Mortgage Choice mortgage broker to discuss your property purchasing options.
1CoreLogic Hedonic Home Value Index, November 2017
2Australian Bureau of Statistics Australian Demographic Statistics, March 2017
3Australian Bureau of Statistics Labour Force, Australia, October 2017