Sydney and Melbourne: Time for Panic Stations? or Inevitable Correction?
Sydney and Melbourne, we take a look at the causes behind the drop in property prices for Sydney and Melbourne in the last 12 months to get to the bottom of whether it is time to panic or simply an inevitable correction to an inflated market.
We are happy to say you don’t need to stock your cupboards with emergency rations just yet.
Our team recently broke down some of the key stats released by Corelogic (formerly RP Data) so you can understand the drop in property values in Sydney and Melbourne and get a bit more clarity moving forward.
There are a number of factors that have forced the Sydney and Melbourne markets to correct including unsustainable price rises, tightening of legislation post banking commission and an over-supply of housing as property prices drop and rental affordability eases.
Often market downturns are a result of interest rates reaching drastic levels which we have uniquely avoided this time around. The biggest driver of the price fall has been heightened banking regulation and credit policies we are experiencing a price correction that will most likely result in a market that is stabler than ever.
Data released by Corelogic shows that Sydney and Melbourne have been hit the hardest in the past year with a drop of 6.1% to Sydney and 3.4% for Melbourne.
The good news for the average homeowner and investor in these markets are that the brunt of the price falls are being seen in the top end of the market, with the least expensive segments holding up better than expected.
Experts are saying with unprecedented growth in both markets over the last decade a drop of 5-10% was merely a matter of time.
Corelogic Head of Research Tim Lawless has stated that “we are seeing strength in the lower end of the market as lenders start to focus on cracking down on high loan-to-income ratios.”
The Royal Banking Commission has been a major factor in kickstarting the downturn with some loans in the falling markets as high as 9 times the annual income.
Mr Lawless commented “as it becomes more difficult to get a loan or as more segments of the market are restricted from credit, we can expect to see a further dampening of the market.”
Mr Lawless warned affected parties not to panic however as the downturn is coming in the form of a very controlled and moderate slowdown and will result in tighter credit policies in the future, further safeguarding the economy from an American style collapse.
Brian White, chairman of Real Estate agency Ray White, was quoted as saying “Australia is lucky that the Melbourne and Sydney booms ended when they did as another 12 to 24 months of rises could have seen catastrophic consequences. Whilst it is likely we will see continuing falls in the two largest capital cities history shows it is the inevitable evil of such prolific rises.”
“Whilst it is likely we will see continuing falls in the two largest capital cities history shows it is the inevitable evil of such prolific rises.”
Although the two markets have brought national average to a loss we are still seeing some great opportunities across the country.
Be sure to a look at some of our recent articles for the regions creating the most noise in our offices.