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MoneyPerth's four-year housing bust is nothing like what Sydney and Melbourne's property markets face

18:41  06 december  2018
18:41  06 december  2018 Source:   abc.net.au

The property price falls in Sydney and Melbourne are speeding up

The property price falls in Sydney and Melbourne are speeding up There's now little doubt that home prices in Sydney and Melbourne are falling faster. 

When the mining boom ended in 2014, the bottom fell out of Perth ' s property market and the slide shows no sign of ending. But on the eastern seaboard, experts warn the rise — and fall — in house prices will be much more significant, and swift.

ANZ last week predicted Sydney and Melbourne property prices will drop about 10 per cent from Looking through a wider scope, late last year UBS economists calculated Australia’ s property price Those don’t sound like the words of a central banker keen on higher interest rates amid falling house

Perth's four-year housing bust is nothing like what Sydney and Melbourne's property markets face© Provided by ABC News Perth house prices have slumped since their peak in 2014. As house prices continue their downward trajectory on the eastern seaboard, property owners across the Nullarbor are watching on with interest.


Perth is more than four years into a housing downturn that is yet to bottom out after median house prices peaked at $585,000 in November 2014, according to Landgate figures.

As panicked owner-occupiers and property investors in Sydney and Melbourne try to predict what will happen from here, real estate observers and economists say the WA market may provide some clues.

Slow slide vs steep plunge

In WA, house prices were the casualty of a slump in population growth, triggered when a swathe of construction projects kicked off by the mining boom were completed.

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A history of Australian housing market corrections, in one chart Home prices in Sydney and Melbourne have now been falling for over a year. In real, inflation adjusted terms, the current downturn is both modest in scale and duration compared to those seen in the past, including the current episode in Perth.

and Perth , combined,[67] and Melbourne ' s property market remained highly priced,[68] resulting in historically high property prices Like many urban areas, Melbourne faces environmental issues Melbourne has minimal public housing and high demand for rental housing , which is becoming

Australian property market outlook: Sydney , Melbourne , Brisbane, Perth , Adelaide house prices forecast. Even though the Melbourne property market it is taking a breather after 5 years of exceptional growth There is nothing about this to be referred in terms of being a ‘great country’.

That caused the Perth median house price to fall 14.8 percent from its peak, according to CoreLogic data.

For property owners, the past four years has been a constant stream of bad housing news, leading to a surge in mortgage stress.

But the decline has been gradual, according to Real Estate Institute of Western Australia (REIWA) president Damian Collins, in contrast to the wild fluctuations underway on the east coast.

"Sydney figures show that [prices are] down 9 to 10 per cent in 12 months alone, so it's much more significant and swift, the decline," Mr Collins said.

"The rapid downturn has certainly spooked a lot of people."

The reality is that Sydney has further to fall than Perth did, according to Bankwest chief economist Alan Langford.

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Could this be the future of Melbourne and Sydney ? Western Australia was once a booming product It had one of the strongest economies in the nation with housing prices on par and even higher than Perth property valuer Gavin Hegney told ABC’ s 7.30 program homes at the top end of Perth and on

“[The Perth market ] is a normal market reaction to falling demand and increased supply,” Mr Rowley said. “As demand increases and new supply In Sydney and Melbourne ’ s favour, a huge population boom and high level of overseas investment demand puts the two cities in a better position than Perth .

"If you get that far out of kilter with incomes, you're going to have a steep fall," he said.

How households react to a property bust

In Perth, the retail sector took a hit as households cut back on spending.

"We've seen a big slowdown in retail trade on the back of this sliding housing market," CoreLogic head of research Cameron Kusher said.

"I wouldn't be surprised, particularly over the Christmas/New Year period, if we do see much weaker retail conditions than what we've seen over recent years, due to the fact that property prices are falling fairly rapidly in Sydney and Melbourne."

Economists say the reversal of the "wealth effect", created by rising house prices, is to blame.

"If you've got houses and share prices falling at once, a household that has equity in a house plus a share portfolio — either directly or through their super funds — they're not going to be as inclined to spend, which is why we're seeing soft household consumption growth coupled with modest wages growth even in New South Wales and Victoria," Mr Langford said.

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Australian home prices are falling at the fastest pace since the GFC Australian home prices fell by the most since the GFC in November. Median prices fell by 1.4% in Sydney and 1% in Melbourne. Apart from Perth where prices slipped by a smaller 0.7%, values increased in all other capital city markets.

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"You're more inclined to run your savings down to finance consumption if you think your wealth is being maintained or growing."

However, Mr Langford said household consumption was holding up in Sydney and Melbourne.

"A little bit worryingly, including for the Reserve Bank, is that it is being sustained by a rundown in savings because their labour market's quite strong and people are confident in their jobs, which is great.

"But we just need to be aware that households are maintaining consumption in the face of subdued wages growth by running down savings."

And that has a flow-on effect to the broader economy.

In WA, unemployment remained relatively stable, but underemployment ticked up, while building approvals have more than halved since their peak in 2014.

"Certainly now, there is a big downturn in the housing construction sector," Mr Kusher said.

"It has, obviously, a flow-on effect to real estate agencies as well."

Missing out on $1 million

As potential investors sit on the sidelines, those already in the market stand to miss out on more than capital gains.

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Sydney and Melbourne ' s property markets are holding up more strongly than expected partly "The demand for housing is probably holding up a little bit stronger than we thought, even four or five "The other thing I would say is the constant net migration to cities like Sydney and Melbourne , which

Sydney and Melbourne have consistently showcased the strongest capital growth conditions of all capital Not far behind Sydney , Melbourne ’ s residential property values rose at the second most rapid Residential property values in Perth recorded a 0.1% decrease for houses over the past 12

Property commentator Gavin Hegney said while prices may drop by up to 20 percent from peak to trough, the real, risk-adjusted loss facing investors may be closer to 40 percent.

That is due to inflation and the opportunity cost of having capital tied up in loss-making assets, which could be invested elsewhere.

"You could have taken $1 million out [of Perth property] in 2014 and taken it over to Sydney and now be sitting on an asset worth $1.8 million," Mr Hegney said.

"In Perth, that would now be worth $800,000.

"That's the missing million."

The cost of moving sidelines buyers

In a downturn, capital losses are not the only consideration keeping buyers out of the market. It becomes harder for homeowners to stomach the considerable cost of moving house.

"When you've been in a market such as Perth, where a lot of people haven't seen any capital growth at all for 10 years — in fact, some people have seen negative growth — all of a sudden, those transaction costs really start to bite and it puts people off moving," Mr Collins said.

"It is going to be a while before we see a return to the turnover in volumes that we saw.

"Ten years ago, [sales] volumes in Perth were 62,000 properties a year, now it's about 32,000.

"That's been a big drop and I can't see it getting back to those turnover levels for many, many years ahead, if at all in the next decade."

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He predicts that Sydney and Melbourne property prices will fall another 5 per cent or so this year with "By contrast home prices in Perth and Darwin are either at or close to the bottom, price growth is "Consistent with the fall in Sydney and Melbourne property prices, auction clearance rates and

While prices are falling in Sydney and Melbourne, Urban Development Institute of Australia (WA) chief executive Tanya Steinbeck said policy makers should "not to expect the downturn to fix the housing affordability issue".

"In WA, over the last few market cycles, it's now become a structural issue, not necessarily a cyclical one," Ms Steinbeck said.

"That's because increased supply doesn't always meet the needs of those who are on low-to-moderate incomes.

"I anticipate that it may not meet that need in Sydney and Melbourne, given the significant increase in the median house price over there."

A stagnant market becomes the 'new normal'

In Perth, even after four years, the decline in market sentiment has yet to reverse course, plunging to new depths in housing data released this week.

"[People] feel that's the new normal, that prices just stagnate or decline moderately," Mr Collins said.

"There doesn't seem to be any perception amongst anybody out there in the market, generally, that they're going to make any substantial capital gains, if any at all.

"Whereas you go back 18 months ago, in Sydney and Melbourne, there was the exact opposite. They just thought it was going to go up 15 percent per annum as far as the eye could see."

Real estate observers say credit tightening, initiated by the banking regulator to tame investor activity on the east coast, meant Perth became collateral damage.

"Twelve months ago, it was actually starting to look like there was some green shoots in the market," Mr Kusher said.

"Once credit conditions tightened again at the start of this year, any hopes of a recovery in the market faded and that's why we've seen values falling again."

Making the most from a bust

However, the real estate industry says downturns can present opportunities, too.

"It's a great time to continue to invest in infrastructure in the downturn," Ms Steinbeck said.

"It's far more affordable for the state to invest in infrastructure in a softer market.

"You've got labour costs that are significantly lower, you've got more trade availability and it continues to boost the economy."

For now, CoreLogic expects prices on the eastern seaboard will continue to fall.

"Realistically, we see that the downturn's probably going to continue throughout most of next year and into early 2020," Mr Kusher said.

"Our view's always been Sydney and Melbourne will fall somewhere in the 15 to 20 per cent range and that's looking … very likely at this stage.

"People are still, in a lot of instances, well ahead, but I guess people have been accustomed over the last 25–30 years for property prices to go up, so when they're going down it's a bit of an uncomfortable situation."

Sydney and Melbourne house prices are headed for the largest downturn in modern history.
Capital Economics is bearish on Sydney and Melbourne home prices, predicting they'll fall 20% and 17% respectively from the prior cyclical peak. It says "this would make the downturn in each city the largest in modern history". Don't fret if you live in Australia's remaining capitals, though. The group expects a far more resilient performance from prices. In financial markets, a bear market is defined as a fall in an asset price from peak to tough of 20% or more. If Capital Economics are right, a bear market in Sydney home prices is just around the corner. And Melbourne property prices won't be far behind.

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