After six years of unprecedented rapid growth, Australia’s housing prices have now been continuously falling for 11 months in a row. The decline in prices is caused by financial regulator Apra’s tightening of lending from the banking royal commission.
Over the past decade, investors have shown confidence in Australia’s housing market but, a lot of them are changing their stance because of the rapid downfall of prices in Sydney and in Melbourne’s market. The prices in Sydney have fallen by 5.6% over the past one year, and by about 2%, in Melbourne.
Although reporters on Channel Nine’s 60 Minutes have predicted a whopping 40% fall in prices (that could result in a market crash), and Capital chief economist Paul Dales has predicted a 12% price fall across Australia, a lot of economists are expecting a soft landing. Louis Christoper from SQM Research has argued that “the safety valves [that] are still present in the market. For example, strong local economies, strong population growth, banks very unlikely to fail, etc”. He has argued that although the prices are falling, it is very unlikely that the housing market will crash.
We believe that for the housing market to crash, there have to be investors willing to sell their properties and little to zero demand from buyers to buy properties. Because of Australia’s low unemployment rate and higher consumption, we believe that even if the prices continue to fall, they will create more opportunities for buyers to buy properties in major cities like Sydney and Melbourne.
This would not cause a market crash because along with higher consumption, Australia also maintains a consistent and strong migration policy that continues to support the demand for housing. We believe that as long as Australia maintains a low unemployment rate and continues to cater young professionals in the country, it is hard to see a 40% fall in prices.