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7 reasons to believe Australian property prices aren’t about to fall off a cliff

Photo: Mike Hewitt/Getty Images.

Is Australia’s property market really a precarious house of cards waiting to topple?

There’s a property debate raging at present – some say the future for property is bright while others suggest our markets are set to crash.

After a number of boom years, especially in the Sydney and Melbourne property markets, we’ve entered a more mature stage of the property cycle, and obviously, it would be good to know who’s right if you are considering investing in property, or about to buy a home
But remember there is not one property market around Australia.

Our markets are fragmented – not only is each state at its own stage of its property cycle, but within each state different segments of the markets are behaving differently.

So it doesn’t really make much sense to say the “Australian property market” will crash.

Why property won’t crash.

There are a number of reasons why we won’t see major falls in home prices in our capital cities any time soon.

1. Robust population growth fueled by immigration and to a lesser extent strong natural population growth. While immigration levels have dropped, we’re still growing at a faster rate than any other country in the developed world.

2. A healthy economy that, while slowing a little, will continue to perform at a level that is the envied by of much of the Western world and will create jobs for anyone who wants one.

3. A sound banking system with reasonable interest rates, tight lending practices and low default rate.

4. Business confidence is rising as we seem to have a stable government at both the Federal and State levels.

5. Consumer confidence has been rising since Malcolm Turnbull was elected Prime Minister.

6. A healthy level of household debt. Sure we are borrowing more, but the debt tends to be in the hands of those who can afford it. Many Australians are saving more, taking on less credit card debt and paying off their mortgages faster than they need to which improves the state of their personal finances. This in turn reduces the risk of house prices collapsing if interest rates rise or the economy hits a speed bump.

7. A culture of home ownership – seventy per cent of us own or are paying off our homes. In contrast to some overseas markets Australians have high equity in their properties and a conservative debt position. In fact half of all homes have no debt against them.
What’s ahead?

There’s no sugar coating it…property price growth will slow in 2016.

Decreasing affordability, changing sentiment and oversupply in several sectors such as CBD and off the plan apartments will create a volatile mix that will fragment and slow our property markets – moving some from a seller’s to a buyer’s market.

Yet there is still a large demand for housing – people are still getting married, having babies, getting divorced and coming from overseas.

And if they can’t afford to buy their homes they are going to rent and this will force rentals up.

All this means is our booming property markets in Sydney and Melbourne have slowed down from 5th gear to 3rd gear – but they’re not going in reverse any time soon.

Michael Yardney is a director of Metropole Property Strategists, which creates wealth for its clients through independent, unbiased property advice and advocacy. He is a best-selling author, one of Australia’s leading experts in wealth creation through property and writes the Property Update blog.

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