February 9, 2019
The Melbourne Property Market Could be Worse Than you Think – Here’s why…

Just how much are house prices tumbling?

It is no secret that national median house prices declined nearly 5 per cent last year, with Melbourne earning the title as one of the weakest performing cities in the country. Property values in Melbourne have experienced an over 10 per cent drop year on year, and despite its lackluster performance in 2018, industry statistics support the belief that the downturn in the Melbourne property market is far from over. In fact, the market fell just over 1.6 per cent in the first month of the year.

It is no secret that national median house prices declined nearly 5 per cent last year, with Melbourne earning the title as one of the weakest performing cities in the country. Property values in Melbourne have experienced an over 10 per cent drop year on year, and despite its lackluster performance in 2018, industry statistics support the belief that the downturn in the Melbourne property market is far from over. In fact, the market fell just over 1.6 per cent in the first month of the year.

Referencing trends in economic data would suggest a further fall in 2019; however, many individuals maintain wishful thinking, with most expecting prices to remain stable and some even expecting prices to climb steadily. The CoreLogic report confirmed that we are in the midst of a buyers market: “buyers are now in a position where they can negotiate harder, take their time in making a purchase decision and be selective in finding a home that is right for their budget and lifestyle.” The report went on to explain what sellers are dealing with: “on the other hand, vendors are clearly facing more challenging selling conditions.” 

Regardless of speculations surrounding the future of the market, one solution that “high-rise” Harry Triguboff proposed was to reduce taxes, which would encourage investors around the world to engage in market activity. He also added that tax cuts would allow millennials to set aside the necessary funds to purchase a home.

What is Causing the Weakest Property Market Since 2008?

CoreLogic, a leading provider of property data, released a report recently that represented the home value index in addition to outlining a number of the factors to blame for the worsening market conditions. Tim Lawless, CoreLogic’s head of research, stated that the following elements are responsible: “tight credit conditions,” “higher levels of housing supply,” “less domestic and foreign investment,” and “weakening consumer sentiment.”

Interest rates at the Reserve Bank of Australia are at a historic low of 1.5 per cent, a level which has been maintained since August 2016. In addition to the absence of interest rates in CoreLogic’s list, mortgage rates were not included as well since they are also holding out near historic lows. While low interest and mortgage rates are typically indicative of a housing market, the current market conditions prove otherwise.

What to Expect for 2019

The drivers of worsening market conditions listed above in conjunction with the exorbitant housing prices are reason enough to cause the bubble to burst. Scandals plaguing the mortgage and banking industries in 2018, along with excessive levels of speculation from investors led to the bubble expanding to its current magnitude in the first place. As banks attempt to clean up their act in 2019, these factors in combination create tight credit conditions, further depressing the housing market.

How Does this Impact you?

Whether you are a buyer or seller in the market, it is important to evaluate the current state of the market. Property investors are leaving Melbourne and shifting their focus on areas experiencing a sudden property boom, such as Queensland, Tasmania, and New South Wales. Low interest and mortgage rates will continue to appeal to buyers; however, fewer buyers in the market and property prices that outpace wage growth will make it difficult for individuals looking to sell to see a profit.

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