Real-estate prices in Sydney and Melbourne appear to be on-track to achieve an anticipated decline of 20% and it won’t be surprising to witness a crash according to a significant rethink on the direction of the market by one of Australia’s most high-profile economists – Shane Oliver (Head of Inv Strategy & Chief Economist at AMP Capital). His previous estimation of a 15% drop from the peak that was likely to play out to 2020, has been updated based on data in recent weeks. And, the warning is coming against a backdrop of an increasingly gloomy outlook for house prices that have been falling consistently in the two big cities during the last 12 months. They have slipped almost 5% in the past year, implying they could now have another 15% to go. But at the same time Oliver warns that the risk of a crash cannot be ignored backed by the fact that banks may overreact and become too tight and investors may decide to exit in the event of falling returns, low yields and possible changes to negative gearing and capital gains tax.
The quarterly Ipsos Issues Monitor, which asks respondents to select the three “most important issues” facing the community, revealed housing topped the list of concerns in NSW for the first time early last year. And the latest results, published last week highlighted that housing is still the No. 1 concern in NSW even though property prices in Sydney have been falling for a year. The sentiments were prevalent in Victoria where anxiety about housing also peaked last year and remained the second highest concern facing the community, although it was ranked the No. 1 among those aged under 35.
According to the most recent price data, published by CoreLogic, Sydney’s median dwelling price had fallen 6.1% while Melbourne’s fell 3.4% during the last 1 year.
The weakening property market also had a direct impact on property listings businesses with Domain Holdings Australia Ltd (ASX: DHG), owner of domain.com.au, down 14% during the last 1 month while REA Group (ASX: REA), owner of realestate.com.au, has shed 16%.
Meanwhile property valuation business Landmark White (ASX: LMW) has remained steady with the company’s business model that remains stable irrespective of the peaks and troughs in the property market.
While this trend may have been a worry for some but the falling house prices have been welcome news for Australia’s younger generation, that had been feeling that their dream of owning a home was slipping out of reach. But if you are an Investor, you need to be very careful with you investments, especially on stocks that are directly linked to the Australian property market. It would be wise to steer clear of these stocks at the current stage in order to avoid potential losses until the real-estate sector stabilizes which is going to take time.
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