Is The Australian Property Market Going To Crash?
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Loading... - Devin Whelan
- 19 May 2023
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If you've been involved in property transactions in recent years, you're probably familiar with the significant surge in Australian property prices during 2020 and 2021. However, in 2022, property prices started to decline, particularly in certain markets, as the Reserve Bank of Australia (RBA) increased the cash rate and mortgages became more expensive. As we progress into 2023, there are indications of a recovery in the property market. CoreLogic's Home Value Index shows a slight increase of 0.6% across all major cities in March and a further 0.5% rise in April. These are the first positive changes in 11 months. Despite the recovery, prices remain higher than pre-pandemic levels, and many property experts are predicting the end of the property slump.
According to Tim Lawless, the Director of Research at CoreLogic, the housing market recovery can be attributed to a combination of net migration and a shortage of available properties. Lawless mentioned that many potential sellers refrained from entering the market during the downturn, resulting in below-average inventory levels. This situation has given sellers some leverage during negotiations. Lawless also noted that many buyers perceive the interest rate hike cycle to be approaching its end for now. This perception contributes to the broader belief that the market has reached its bottom, making it an opportune time to buy. As interest rates stabilize, there is a high likelihood that consumer sentiment will improve, further bolstering housing market activity from both buyers and sellers.
In a recent report, the International Monetary Fund (IMF) ranked Australia as the second-highest country, after Canada, in terms of "housing market risk" among 27 countries. This ranking is primarily due to the high level of outstanding housing debt relative to income in Australia.
The question on many people's minds is whether the property market is heading for a crash. To gain insight into this matter, we reached out to two experts.
Eliza Owen, Head of Research, Australia, at CoreLogic, highlights that although Australian properties are relatively more affordable now than during the pandemic, they are still significantly expensive. Owen explains that the housing market in Australia experienced a peak in April 2022, with an overall increase of approximately 30%. Regional areas saw a stronger upswing, with values rising by about 40% between late 2020 and early 2022, while the combined capital cities experienced a growth of around 25%.
Maree Kilroy, a senior economist at BIS Oxford Economics, attributes the housing market's buoyancy during the pandemic to various factors such as the emergency low interest rates, increased demand for holiday houses, people relocating to regional areas, the return of expats, and individuals seeking more space or their own space following lockdowns.
So, will the property market crash? Domain figures indicate that Australia's housing market value declined by 5% across capital cities in 2022, with Sydney experiencing a drop of 10.9% and Melbourne down by 5.9%. Canberra and Brisbane also saw decreases of 6% and 1.1% respectively. However, according to CoreLogic figures, the most significant decline occurred between the early 2022 peak and November, with Australian combined capital city property prices falling by 6.5%.
Eliza Owen doesn't classify this as a crash, explaining that a housing market crash entails a substantial decline in value and mortgage serviceability, where homeowners can no longer afford their mortgages, resulting in forced sales that fail to cover the outstanding loan. She states that this is not the scenario observed in the current market.
Maree Kilroy suggests that despite the downturn experienced in the latter half of 2022, a crash is unlikely due to strong economic fundamentals. She points out that demand remains high, with elevated rents and the return of overseas migration attracting more potential buyers. On the supply side, continued low unemployment rates are limiting the number of properties available for sale. Distressed sales have not yet become evident in the housing market.
Now, let's address the question of whether the property market will crash. It's important to note that while the market has experienced declines in certain areas, a crash, as defined by a significant loss in value and mortgage affordability leading to forced sales, does not appear to be unfolding at present.
Experts like Eliza Owen emphasize that the decline in prices and market activity does not meet the criteria for a crash. Instead, it reflects a correction in response to the previous price surges. The factors driving the property market, such as demand, low unemployment rates, and a shortage of available properties, indicate that the market is fundamentally sound.
While uncertainties and fluctuations may persist, the overall outlook for the Australian property market remains cautiously optimistic. It is expected that as interest rates stabilize and consumer sentiment improves, the housing market will continue to recover. However, it's essential to monitor economic conditions, potential policy changes, and external factors that could impact the market's trajectory.
In conclusion, while the property market experienced a downturn in 2022, the evidence suggests that a crash is unlikely. The market has shown signs of recovery, and strong economic fundamentals, including demand and limited supply, provide support. As always, prospective buyers and sellers should stay informed, seek professional advice, and carefully assess their individual circumstances before making any significant decisions.
