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The Great Australian Housing Slump

We often hear phrases like “property bubble” and “housing slump” thrown about in the media, but what do they actually mean – and how could it impact you, if the property bubble does in fact burst?

Property prices have continued to rise across our major cities, despite many “experts” warning of a market crash being just around the corner for several years.

So are we truly heading towards a property bust akin to what happened in the USA during the GFC? Or is it all media hype?

And what does this mean for the average Australian property buyer, seller or investor?

Housing affordability – the facts

The “housing bubble” refers to the theory that house prices are over-inflated, and cannot continue to rise at their current pace, out of step with increases in incomes.

When you crunch the numbers, it doesn’t look good for first home buyers – house prices have been increasing at a rate far in excess of wage growth for several years.  CoreLogic reports that in 2016, houses in Sydney cost 8.9 times the average salary – a massive leap from the 6.0 ratio recorded back in 2000.

Money growing in soil with house

Similar trends have seen property prices soar, relative to incomes, across the country.

So, is the bubble going to burst? Well, that depends on who you ask…

Read more: Affordability increases, yet first homebuyers out in the cold

Experts are divided on if, when and how the housing bubble might burst, and commentators have posed several scenarios that could result in a crash occurring.

These include interest rate rises causing mortgage stress and forcing owners to sell, or banks tightening their lending criteria and making it more difficult for prospective buyers to secure loans. There’s also speculation that government intervention and affordability measures could prompt a market correction, or that a crisis overseas could have a knock-on effect to our economy.

However it happens, if indeed it does, it won’t be in insolation – the housing market is intrinsically linked to other aspects of our economy, so there is bound to be an impact on the prices of goods and services, job security and the share market, should house prices take a dive.

What does this mean for buyers and sellers?

We don’t have to look too far to see the effects of a housing slump in action: over in WA, now that the mining boom has cooled and unemployment and underemployment is on the rise, falling property prices have resulted in many homeowners finding themselves over-extended.

In the eastern states, as a long-term investment, property remains a solid choice, because even if prices fluctuate or growth stagnates for a short time, longer-term gains can be made if investors are able ride out interest rate hikes.

However, a market slump could put the brakes on investors whose strategy relies on renovating and “flipping” homes for a quick profit. Investors may also be impacted if the banking sector decides to tighten lending criteria further, not to mention the effect an overhaul of negative gearing policies could have – if they are ever introduced.

For first home buyers, there is a glimmer of hope on the horizon, with several state governments announcing affordability measures to help them enter the market.

In Victoria and NSW, stamp duty has recently been abolished for first home buyers who purchase a property for under $650,000. In addition to this, the NSW government has announced plans to increase stamp duty for foreign investors, from 4% to 8%, in an effort to open the market up to young Aussie buyers.

If these measures are successful, in conjunction with a cooling market, it could be just the opportunity first home buyers have been dreaming of to get their foot on the property ladder.

That said, it’s worth noting that many of the scenarios via which a housing slump could occur would have a detrimental effect on our economy as whole – meaning that while housing might become cheaper, the prices of other essentials could rise, and jobs may be at risk.

It begs the question: is a property market correction really what first home buyers want?

Read more: Why Australians aren’t leaving the nest – click here to read about The Costanza Effect in action

The post The Great Australian Housing Slump appeared first on RealestateVIEW Blog.

Source: RealestateVIEW Blog

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