Are prices going to fall?
I’m often asked by potential clients and property investors what my thoughts are on the Sydney market. The most overriding fear of all would-be investors and home buyers is falling prices. The mere thought of negative capital growth is enough to send shivers down their collective spines, as they mortgage themselves to the hilt in the quest to afford one of the worlds most expensive capital cities. With Sydney’s current median house price at $667,500 (Source: Residex) it’s no surprise that purchasers remain cautious. Add to this the current gloomy public sentiment, rising interest rates on the horizon and our dollar at an all time high, it’s not unusual to see buyers sitting on their hands.
However, not all the news is unsettling. Recent affordability index figures released by the Housing Industry of Australia (HIA) and CBA show that affordability improved 3% to 55.7 for the March quarter. A softening in house prices was one of the main contributors with national figures falling 0.6% in the same period. According to John Edwards from Residex, Sydney, Perth and Brisbane currently appear to be at the bottom of the current market cycle- a genuine opportunity, in his opinion, to buy discounted listed properties in a buyers market. But, I hear buyers argue, how do we know it’s the bottom? And, if this is the case, what if prices fall further? Even a modest 8% fall in the current median price equates to a loss of more than $50,000.
We’ve all heard the saying “Its time in the market, not timing, that counts”. After all, the general theory being that if you hold property for a sufficient long enough cycle eg: 7-10 years the market will correct or catch up. Capital growth tends not to be consistent year in year out, but rather spasmodic, with highs and lows. Some of these low periods may include negative growth. However timing also does make a difference. After all, when growth stalls prices also fall, often creating opportunity that wasn’t present in high growth periods. The hard part is knowing when to jump in- as none of us have a crystal ball that forecasts capital growth rates or intimate knowledge of what moves the federal or state governments are likely to make, that impact on the market. We will never be able to accurately pinpoint the “bottom” of the cycle, until well after the event, despite the best intentions of the field experts out there who claim otherwise.
However, property still remains a popular choice for Australian investors and whilst banks are happy to heavily leverage on an asset that’s considered as “safe as houses” investors and home buyers will continue to jump right in. Falling prices or not, historical growth has demonstrated that holding well-located median-priced Australian property over the longer term (and I would advocate 10yrs as a more accurate holding cycle than 7 years) pays off for many purchasers. Sure, there might be a few troughs and hills along the way but it’s the whole ride that counts in the end.