According to Core Logic’s Home Value Index, Melbourne house values fell around 2.8% during the September quarter, and are down around 3.4% on this time last year.
Despite the panicked headlines in the media, this hardly constitutes property market Armageddon.
In fact, it’s not dissimilar to other times in recent memory when house prices declined following a peak in the market. For example, the Melbourne median house price dropped 9% in 2011 after peaking in 2010, before levelling out in 2012 and starting to climb again.
(Ah – but people have short memories, don’t they!)
Furthermore, it’s worth noting that the median Melbourne house price today is still around 33% higher than it was just 5 years ago according to statistics from the Real Estate Institute of Australia.
“The correction we had to have?”
When property values go up by that amount, it’s inevitable that there will be a subsequent dip or “correction” at some point – as no property boom lasts forever.
We see this behaviour in the stock market all the time where it just happens faster, so share investors expect it… whereas property investors become complacent and somehow get surprised when property values pull back after a period of strong growth.
And while it’s easy to get fooled into thinking that the property market in all of Australia follows what happens in Sydney and Melbourne, the reality is quite a mixed bag around the rest of the country.
The “mixed bag”…
Sydney house values are down around 7% over the past year, Perth is down 2%, but Brisbane and Adelaide are up slightly, Darwin is up 2%, Canberra is up 3%, and Hobart values are up 9% over this time last year.
Overall, Australian house values are down just 2.7%. To quote Core Logic’s head of research, Tim Lawless, in his commentary on the latest market statistics this month:
“Since the national index peaked twelve months ago, dwelling values have fallen by 2.7%; hardly a crash, and a slower rate of decline relative to the previous housing market downturn (Jun 2010 to Feb 2012)”
Where will property prices go now?
It seems like the analysts, banks, and media pundits can’t agree about what’s going to happen to property prices over the next couple of years.
Some see a “soft landing” with prices retreating a little and then levelling out.
The ANZ forecasts “nationwide housing prices to decline by 4% in 2018, and a further 2% in 2019”, with Sydney and Melbourne coming off a bit more by around 10% in total over the next 2 years.
Doesn’t sound too drastic, and would be quite “moderate” by historical standards.
Investment bank Morgan Stanley is a little more pessimistic, forecasting a 10%-15% fall before prices level out.
AMP had previously predicted price falls of 15% in Sydney and Melbourne, spread out over 3 years to 2020 – or about 5% per year – but got some media attention this month when they revised their forecast to a total 20% fall over 3 years.
Then there’s the now infamous 60 Minutes feature from last month that boldly claimed that house prices could fall by 40% in the next 12 months!
(I should note that every market analyst interviewed for that feature has since distanced themselves from those claims, stating they do not believe that the market will “crash” as suggested by 60 Minutes.)
And American economic doomsday author Harry Dent is back in town on the seminar circuit, claiming that “Australia’s debt crisis or ‘debt bomb’ as it’s been called, will see Australian house values plummet in value by up to 40%.”
Yikes!
Predictions of The Property Market Apocalypse make for great “click bait” to sell advertising or seminars, but really just highlight the promoter’s (deliberate?) ignorance of how the property market actually operates.
So who’s right?
The only certainty is that they can’t all be right.
In fact, the history of attempts by banks, economists and the media (and yes, Harry Dent too) to predict the Australian property market would suggest that, to a greater or lesser extent, they’re all likely to be wrong.
The reason they’ll all be wrong to some degree is that every one of these analysts and commentators treats housing in this country as if it is one big single market where prices everywhere move the same way.
While there’s no question that reported “Melbourne” house values are softening at the moment, we also need to understand that “Melbourne” is not a single housing market.
Rather, it’s a collection of 321 discrete suburbs, each of which performs differently.
Right now, the inner city and eastern suburbs have seen some of the greater falls over the last year, while values in many northern, southern and western suburbs are still higher than they were this time last year, and some are still rising.
Different price brackets within the market perform differently too…
More affordable housing is experiencing strong demand from first home buyers, currently driving up prices in suburbs with lower priced properties. Properties in mid-range and upper-range price brackets are the ones seeing more of a reduction in values at present.
And the forecasts for price movement at the individual suburb level are quite mixed too.
(If you’d like to see how the market is actually trending in Melbourne and the rest of the country, based on factual research rather than hype and conjecture, then book here for our upcoming free workshop for serious property investors.)
The Power to See the Future
Wouldn’t it be powerful to know which suburbs were likely to trend up over the next year, and which ones are headed in the other direction?
More importantly, wouldn’t you want to know whether YOUR suburb (or any suburb where you currently hold property – anywhere in the country) was likely to head up, down or sideways?
If you knew this, then you could take pre-emptive action to protect any gains you’ve already made (by getting out quickly if the outlook was dire), or have greater peace of mind knowing that your property was likely to perform well over the year ahead.
You’d be able to ignore media hype about booms or busts, and make more informed, more confident investing decisions. (Not to mention sleeping easier rather than worrying about your property investments.)
Learn to read the market like a professional – for free…
I want to teach you exactly how to tell whether any suburb in Australia, including your own, is most likely to go up, down or sideways in value over the next year.
It’s a simple technique that can be done in under 5 minutes and with no need for expensive software or other gimmicks.
It’s so simple in fact that you’ll be amazed more people don’t know about it. Yet 99% of property investors and almost all so-called property educators and market analysts don’t know how it’s done (which is why they keep getting their predictions wrong).
And the media definitely doesn’t get it.
See you there,
– Simon