Has Australia’s Housing Outlook Changed?
With China/US Trade tensions running, it seems housing markets around the world may be hit with shock waves that could send home and condo prices tumbling.
Australia’s economy however has been steady and bolstered by widening trade surpluses. Will this be enough to sustain the country during a vacuum caused by foreign investors leaving?
Australian investors, landlords, and property managers are no doubt feeling the winds of change in 2018, and will have to conduct property management wisely to hang onto tenants in the rental markets of Sydney, Melbourne, Adelaide, Perth, Canberra, and Brisbane.
For overindebted Australian mortgage holders, it might be the end, but for savvy investors, 2019 might bring some outstanding buying opportunities for rental income property. Will foreign buyers come rushing back soon?
Prices Dropping Down Under
The general concensus is that Australia’s housing market has peaked and is now in retraction. Although new housing units are being released in sizable numbers, home and condo prices are dropping in Melbourne, Perth, Brisbane, Darwni, and in Sydney.
The writing is now on the wall: Australia’s housing boom is over.” – Paul Bloxham and Daniel Smith, Economists at HSBC Australia
That’s in contrast to June where prices were rising 5 times faster than wages. The price rises were partly attributed to repressive land usage laws, typical around the world, resulting in bidding wars on land available for residential development.
The country survived the great recession well, but this time with China buyers pulling out of the scene, rising interest rates, and international trade wars, the potential for a crash exists. Home prices could have risen much too high in comparison with other countries. And now with foreign buyers avoiding Australia, there is little to support the excessive prices.
Swiss Bank UBS has sounded warnings on Australia’s housing market recently also. Only China and Russia have housing markets that are declining faster so it’s easy for all the experts to pull the plug.
As the above graphic shows, after 6 years of price growth of about 8% per year, prices began to fall in 2017 and are sliding faster in 2018. Fears of oversupply of housing will cause developers to cut back on development which decreases investment and tax revenue for governments and slows the economy. Real estate is big part of any economy including Australia’s.
The seasonally adjusted estimate for private sector houses fell 8.6% in May according to ABS.gov.au. What’s happening is about as fast a drawback as you can get.
Up till now, the housing and economic outlook for Australia were strong:
The question is, whether investment of all types will dry up and if rising tariffs will alter the global balance of trade, weakening Asia and AustralAsia to point of recession. If China’s housing itself has a correction, how would this affect Australia’s housing picture?
4 major factors Dampening Real Estate Prices in Australia:
- higher interest rates may deter buyers
- tighter controls on lending will depress sales
- international trade tensions could lower Australia’s economic outlook
- increasing new construction units being released
The price trends across the major Australian cities are pretty clear. At this point, there’s no reason for upward price pressure and more downside to the picture.
Australia Rental Price Update
Rent prices went up and down in June. It reflects both the uncertainty of the housing markets in each city and perhaps the delay in higher prices reaching the rental markets. See more of the Australia rental housing market stats at Rent.com.au.
Much of the Australian housing market outlook depends on international trade and China’s access to its traditional export markets. With that in jeopardy, a cascade of negatives could overwhelm the resale and new housing markets and rental markets.
Predictions for 2019/2020
The housing markets are clearly headed for retraction in 2019/2020. The stubbornnessof US President Trump’s “America First Policy” and tariffs against China, the ripple effects will take it’s toll on the Australian economy in the years ahead. Those effects not really apparent yet, might be equally felt among all major cities.
First time homebuyer growth as surged in some states, however with tightened lending and a sagging economy, that might reverse itself.
Reductions in rent prices are steep in Hobart, Darwin and Canberra, and price drops may hit all other cities by 2019. That’s good news for housing affordability but less positive for investors. If you’re deep into the housing market and need deep numbers, see the Residential Property Prospects 2018 – 2021 report published by BIS Oxford. Just be wary of old data that doesn’t reflect the macroeconomic changes going on globally.
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