Property Prices 2019

Welcome back to the New Year of 2019. Unless you have been living out in the jungle and under a rock, you would have seen the incredible predictions from so many in the media about the massive property market crash. Anyone reading these articles in isolation may compare the property market falls to that of the depression of 1929. In fact, there has been an annual fall of around 5.8% up to end of November according to Core Logic. With the lack of turnover in December this figure will probably not change much for the whole calendar year of 2018. And for many buyers who use a professional buyers advocate, 6% is just a good negotiation. ($60000 on a $1m purchase)

Many of the media commentators are saying this is the bust that we had to have and that it will continue on ad infinitum. The commentators talk of house prices at up to 13 times annual salaries (domain.com.au), that make it seem unsustainable. Many talk of Darwin’s and Perth’s drop in property price over the past 5 years whilst Melbourne and Sydney have been moving up. We talk of the difficulty for first home buyers getting into the market, and the fact that all property investors are, millionaires many times over. So rich, in fact that the New Federal Labour Government will be taxing them as hard as they can when they get into power in May this year.

Generalisations of gloom and doom are so common in the media that I really am surprised that people believe anything they read in mainstream media anymore. House prices can be 7-9 times annual income levels. If you look at all the figures of property and all the figures of wages and all property prices, this may well be accurate but lets look at specifics. Pakenham is a very popular first home buyers area in the South East of Melbourne. According to RealEstate.com.au the median price of a 3 bed 2 bath house in Pakenham is $495,000 and the Australian Bureau of Statistics tells us the average family income for the area is $1,537pw or around $80,000. This is a little over 6 times the annual family income. In Sydenham in Melbourne’s North East a 3 bed home has a median of 607k with a family income of $1649 or just on 7 times. But this only counts for the First home Buyer. Currently many other 2nd and 3rd time buyers will not have as large a mortgage, but be in a more expensive home because they made money on their first home.

Perth’s housing prices are so tightly attuned to the mining sectors spending that as we saw with the mining boom of 2005 – 2010 we saw Perth’s house prices skyrocket and as soon as spending on mining infrastructure contracted so did the Perth housing market. Darwin is similar to that of Perth and considering the population of Darwin actually contracted 2017 – 2018, why wouldn’t the housing prices go in the same direction. But in Melbourne and Sydney, the population is booming, the Baby Boomers are set to retire over the next 10 – 15 years and then spend their superannuation funds. The amount of jobs available in Melbourne and Sydney will be immense. So much so that no matter what the current or next federal government does with immigration, population growth in Melbourne is assured. Not quite the same in Sydney. Whilst their natural increase in population is nearly as high as Melbourne, their internal migration is negative (more people move out of Sydney to other parts of Australia than move in from other parts of Australia) whereas Melbourne is positive.

Negative gearing is something that we will see in the news a lot over the next 5 months. Labour will tell you that the “fat cats” are getting rich and the government are paying them to do it. What they haven’t told you is if the private sector stopped investing in rental accommodation, then the government would have to foot the whole bill to house 30% of the population of the country. They also neglect to tell you that the average owner of one investment property has an income below $80,000pa. I don’t think someone on the average Australian wage can bee deemed a fat cat just yet!!!

If we debunk most of the hearsay and look at the largest single reason for the decline in property prices over the past 12 months, we can see it is being controlled by a contraction in bank lending. This will not last forever, as the banks will want to lend to as many people as they can. Let’s hope when they relax their lending criteria they don’t go back to the “cowboy” days, but also don’t remain in the area of being stupid and debt serviceability.

I would think by March or April, the lending criteria for the banks will be re-examined and potentially relaxed, however, we will be in a full blown federal election campaign, so I don’t think property prices will start to go up before then. By May, when our new federal government has been chosen (I think it has already but I suppose we better actually have the election day), lending will be easier but the property turnover will still be at winter lows, so trends wont be evident. By September, everyone within the industry will see the price movement but the media won’t see it until the data is published closer to Christmas.

With the market very flat, now is the perfect time to upgrade as higher end properties may be more difficult to sell than those closer to the Melbourne Median. Higher end homes tend to be affected slightly harder than the lower end homes. The price can fall a little further but when the market turns, they rise much faster. Almost every home sold in the next six months will most likely be negotiated on a one on one basis with a professional selling agent. If you think you may need some help or advice, please do not hesitate to give our office a call.

Ian James
Director
JPP Buyer Advocates