A market correction describes a price decline in the value of stock, bond, commodity or market index that stops an upward trend.
Australian dwelling values have surged for some time now so it is unsurprising to see prices start to slow. In this article we explain the ongoing decline in dwelling values and why it’s not all bad news.
Dwelling prices had been on an upward trajectory for some time, peaked in September last year and have been falling ever since. This is due in large part to tighter lending conditions which have slowed down buying activity in the housing market. Put simply, fewer buyers in the market means less competition and therefore higher supply levels of stock in the market which puts downward pressure on prices.
So what does the market look like right now?
Dwelling values are varied across the country. According to CoreLogic’s Hedonic Home Value Index, five of the nation’s eight capital cities experienced dwelling value falls in August 2018.
Unsurprisingly, falls are being led by the nation’s largest capitals - Sydney and Melbourne - which have experienced declines of 3.5% and 3.3% respectively, in the first eight months of 2018. These housing markets are so large that any significant change in their activity has an impact on the overall performance of the Australian housing market.
Hobart takes the lead in performance, recording a 10.7% annual growth in dwelling values, followed by Canberra at 2.3%, Adelaide at 1.0% and Brisbane at 0.9%. Perth and Darwin experienced annual dwelling falls of 2.1% and 4.0% respectively.
Interestingly, the weakening housing market is concentrated in the most expensive side of the market. According to CoreLogic, the upper quartile of the housing market recorded a 5.4% fall in values while the broad middle of the market is down only 0.5% over the year.
While these declines may sound scary there is no need for panic as falls need to be put into perspective. According to CoreLogic, over the 10 years to June 2018, national dwelling values have increased by a cumulative 43.9% with the combined capital cities recording an increase of 52.6% and the combined regional markets recording growth of 16.6%. It is therefore understandable that dwelling values would start to slow.
Booms and slowdowns are all part of an economic cycle and the residential property market is no different. The housing market follows a cyclical pattern where dwelling values rise and fall over time. As such, it’s important that anyone who is invested or is looking to invest, in the housing market take a long-term approach. There’s a lot of noise about a bubble popping or a crash, however, this is unlikely to happen in Australia where unemployment trends lower, population growth is strong, the economy is robust and the financial market is protected by strong regulation.
The combination of cooling property prices and historically low interest rates means that now is a great time to take steps towards your property ownership dreams. If you’re looking to take your first steps towards property ownership, speak to your local mortgage broker to find out what your options are.