Australian Real Estate Sector From Correction to a Crash
Team Veye | 24-Dec-2018
With property prices falling 6% on a national level during the last 1 year and strong falls in 2 major property markets of Australia – 8.2% in Sydney and 6.5% in Melbourne has left the first home buyers much more confident. Although, the new home buyers now represent about 18.1% of the market, according to Australian Bureau of Statistics’ October figures but the numbers are still not close to the heights it reached in May’09 – with a contribution of 31.4%.
The reason is pretty simple one – there are some who are still waiting for the prices to fall further so that they can make the most of it. And, when the market is falling people tend not to be in such a hurry. Another major factor that’s driving the change is the retreat by the investors as the markets are not conducive for any investment until the prices stabilize.
There are several reasons for the drop in real estate sector and some analysts see this downward trend now converting from a correction to a slump. Many suspect it will end up being the longest and largest in several decades, in fact leaving prices back where they were, just a few years ago. Here are some of the reasons that have contributed to the current situation:
- Tighter lending standards
- Acute affordability constraints in some markets
- Substantial increase in property listings
- And, a drop-off in both local and foreign investor demand
AMP Capital’s Shane Oliver still thinks house prices are overvalued. He recently predicted price falls of up to 20% in Sydney and Melbourne, up from their earlier predictions of 15%. By some measures, prices are still about 29% overvalued. HSBC expected the downturn in the Sydney and Melbourne property markets to continue for some time yet.
Some experts believe given Australia’s already elevated household debt levels, the potential for a broader macroeconomic slowdown is perhaps the greatest threat that could make the current downturn a whole lot worse. Household debt levels have risen to new record high levels in recent years, with the household debt to income ratio currently around 190%.
Well no one can predict what’s going to happen with 100% accuracy but one thing is for sure that as an investor it would be wise to stay away from real estate sector and stocks until it stabilizes.
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