Residential property prices are a hot topic in the nation’s news headlines, with every capital city now in a housing downturn, except Darwin. However, the Australian housing market has proven to be resilient in recessions and dips in prices haven’t lasted long.
Here’s what the fluctuating market could mean for your residential property goals.
Substantial drop by year’s end
According to property research firm CoreLogic, the Australian Home Value Index (HVI) recorded a fourth consecutive month of decline in August. All capital cities except for Darwin have experienced a housing downtown. It predicts shrinking prices to continue across the country, possibly into 2023.
How low will house values go?
Market research and insights organisation PropTrack forecasts housing prices will fall by between 2% and 5% by the end of 2022, and then by a further 7% to 10% by the end of 2023.
Buyer demand is changing too, due largely to increasing home-loan interest rates and continuing economic uncertainty due to the pandemic
The impact of house prices on the economy
Economist Jason Murphy and Lead Editor for Forbes Advisor Johanna Leggatt describe house prices as a giant moving part of the Australian domestic economy. Selling and buying homes drive consumption and investment.
Sellers spend to increase the value of their homes pre-sale, while buyers like to inject their style into their new purchase, investing in renovations. Properties changing hands may generate work for real estate agents, online marketing platforms, house stylists, mortgage brokers, conveyancers/lawyers, removalists, tradies, and those who sell white goods/furniture.
What it means for homeowners and buyers
However, when the property market is in decline, there are fewer transactions, therefore lower consumption. This puts a dampener on the economy.
When interest rates and inflation rise but wages don’t, more people are likely to default on their home loans, with their lenders possibly foreclosing on their mortgages.
For instance, if a new homeowner has purchased a house with a 20% deposit and its value drops by 20%, they could be going backwards. The house is worth less than is owed to the bank, meaning they have no equity. In that situation, the homeowner must monitor their interest rate and perhaps look to refinance for a better rate.