The next property decline is here – what’ll push it back up?
The last two decades have seen cycles come and go. With the GFC hitting everyone particularly hard, CoreLogic shares what the future could hold for property values around the country – how long it’ll decline for, and what will cause it to go back up.
In the latest CoreLogic Property Pulse, research analyst Cameron Kusher says the next five-year cycle could see underperformance across markets, with a softer period of growth to be expected as reasonable and healthy.
How long this softer period could last, however, is hard to guess at this point, but is largely due to APRA and affordability issues.
“You’re already seeing values fall in Sydney, they’ve fallen over the last couple of months in Melbourne, so we think [it’s] very likely to continue to decline through 2018 and potentially into 2019,” Mr Kusher told Smart Property Investment.
“That’s obviously because we’ve had the crackdown from APRA, but also just affordability is so stretched that people can’t continue to pay more and more for properties in the Sydney and Melbourne housing markets.”
The last full-on decline was seen during the GFC, and then prices went back on their way up. The next period of growth after the oncoming decline however will likely not see as strong growth, according to Mr Kusher. Why? Interest rates.
“I wouldn’t think the rebound would be as strong as this one, and ultimately, I think that’s because at that point we won’t be seeing interest rates quite as low as they are at the moment, and obviously affordability’s already stretched,” he said.
“If the market was to take off like it did over the last five years in Sydney or Melbourne, I think APRA would probably jump in and contain things quicker than they did over the last couple of years.
“Even over time, as you look over time, generally the rate of growth has been stepping down. I mean if you take it back even further than this analysis, the last 30 years or so, the growth has been slowing.”
In order to see values to go back up, Mr Kusher said it is only a matter of time until people will want to enter the property market again with saved funds.
“After you have a period of decline obviously, you find some people who are willing to jump back into the market because they’ve been sitting on the sidelines for a period of time, they’ve built up enough of a war chest to enter, and also just obviously people start to see value in that market again,” he said.
“I guess the question at that point becomes, ‘At what point does that happen?’ But keep in mind the Sydney and Melbourne economies are still pretty strong, still creating a lot of jobs.
“Population growth into New South Wales and Victoria is really strong, so there’s still going to be demand out there. It’s just whether the people who want to buy can actually get the finance, and I think that’s the challenge at the moment.”
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