Property price falls trigger buyer’s remorse, but long-term perspective is needed

Experts warn there is no need to panic about the future of Australia's property market.

Experts warn there is no need to panic about the future of Australia's property market. Photo: Getty

Headlines about property prices falling “off a cliff” are alarming, but a closer look at the data shows that for the vast majority of home owners there’s no need to panic.

Among the country’s home-owning contingent, some buyers are experiencing “buyer’s remorse”, while those looking to sell in the big two cities are fretting over price drops.

But experts say both parties need not worry.

New figures from property data firm CoreLogic this week showed national dwelling values – the median of the aggregated value of every house and unit in Australia – took their biggest monthly hit since the GFC, falling 0.7 per cent in November and 4.1 per cent annually.

When it comes to property prices, while the headline figures sound scary, the long-term trends can tell a different story.

Here are some key points to keep in mind:

Conditions vary wildly across the country

Change in dwelling values over the year to November 30, 2018. Source: CoreLogic

As CoreLogic head of research Tim Lawless pointed out, conditions across Australian housing markets are “increasingly diverse”.

This is evident from a quick look at market conditions across capital cities, not to mention regional areas.

While Sydney, Melbourne, Perth, and Darwin have seen prices decline over the past year, prices in Hobart have soared by 9.3 per cent, followed by Canberra (4 per cent), Adelaide (1.4 per cent), and Brisbane (0.3 per cent).

Talking about price declines in terms of a monolithic Australian housing market is therefore largely irrelevant to most people. Looking at trends for the specific areas and types of homes you’re interested in can often provide a more useful picture.

Take a long-term view

Capital city house values from October 1993 to October 2018. Source: CoreLogic

A survey of 1500 current and prospective home buyers by home loan lender ME found home owners who bought their properties in the past year were significantly more worried about the impact of prices falling than those who had bought three or more years ago.

Almost half (46 per cent) of those who bought in the past year said they regretted the amount of money they paid, compared to just 15 per cent of those who bought more than three years ago.

While those who got into the market near its peak are in for some short-term pain, taking a long-term view is beneficial.

“There’s little point worrying about what will happen to prices short term if you’re intending to live in a property long term. Same goes for long-term investors,” ME’s head of home loans Andrew Bartolo said.

“The Australian property market has seen seven price declines-recover cycles in Sydney since 1984 and all have seen prices recover, most within four years.”

Put Sydney and Melbourne in perspective

National home value declines were largely driven by the nation’s two most populous housing markets, which are coming off years of historic price rises.

Home prices have fallen 9.5 per cent in Sydney and 5.8 per cent in Melbourne since peaking last year in July and November respectively.

Source: CoreLogic

To put that in perspective, consider that across the 10 years to October 2018 home values in Melbourne increased by 74.7 per cent, according to CoreLogic analysis. Over 20 years, they’re up by a staggering 295.4 per cent.

Source: CoreLogic

In Sydney, home values rose 81.4 per cent over the past decade and are 220.1 per cent higher over the past 20 years.

Source: CoreLogic

Nationally, prices have risen 44.8 per cent over the past decade, and 209.9 per cent over the past 20 years.

Australia’s economy is still looking good

Unlike previous housing market downturns, which have coincided with economic recessions, Australia’s economy remains strong.

“Two of the factors contributing to prices falls in Sydney and Melbourne are macro prudential requirements and tougher credit assessment rules, which have tightened the supply of credit,” Mr Bartolo said.

“Economic growth remains strong and unemployment is low.”

According to Nikko Asset Management investment analyst Chris Rands, falling house prices are largely due to tightening lending standards, and there’s no reason to panic.

“While the performance of house prices has been poor, we don’t believe this is reflecting housing stress. Rather it is due to tightening lending standards, which are constricting credit supply. While this means house prices can continue to fall over the next 12 months, it reduces the risk of a crisis occurring through the housing sector,” he said.

While Australian households are some of the most highly indebted in the world making them “vulnerable to risk”, as long as interest rates remain low and mortgage repayments are affordable “there are few signs that the declines in house prices are being driven by household stress”,  Mr Rands said.

“This means that while house prices can continue to fall, it is less likely that it will turn into a widespread problem causing large-scale defaults.”

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