• 23/06/2024

Property price falls trigger buyer’s remorse, but long-term perspective is needed

Isabelle Lane| The New Daily|4 December 2018


A survey of 1500 current and prospective home buyers by home loan lender ME found home owners who bought their properties in the past year were significantly more worried about the impact of prices falling than those who had bought three or more years ago.

Almost half (46 per cent) of those who bought in the past year said they regretted the amount of money they paid, compared to just 15 per cent of those who bought more than three years ago.

While those who got into the market near its peak are in for some short-term pain, taking a long-term view is beneficial.

“There’s little point worrying about what will happen to prices short term if you’re intending to live in a property long term. Same goes for long-term investors,” ME’s head of home loans Andrew Bartolo said.

“The Australian property market has seen seven price declines-recover cycles in Sydney since 1984 and all have seen prices recover, most within four years.”

Put Sydney and Melbourne in perspective

National home value declines were largely driven by the nation’s two most populous housing markets, which are coming off years of historic price rises.

Home prices have fallen 9.5 per cent in Sydney and 5.8 per cent in Melbourne since peaking last year in July and November respectively.

Source: CoreLogic

To put that in perspective, consider that across the 10 years to October 2018 home values in Melbourne increased by 74.7 per cent, according to CoreLogic analysis. Over 20 years, they’re up by a staggering 295.4 per cent.

Source: CoreLogic

In Sydney, home values rose 81.4 per cent over the past decade and are 220.1 per cent higher over the past 20 years.

Source: CoreLogic

Nationally, prices have risen 44.8 per cent over the past decade, and 209.9 per cent over the past 20 years.

Australia’s economy is still looking good

Unlike previous housing market downturns, which have coincided with economic recessions, Australia’s economy remains strong.

“Two of the factors contributing to prices falls in Sydney and Melbourne are macro prudential requirements and tougher credit assessment rules, which have tightened the supply of credit,” Mr Bartolo said.

“Economic growth remains strong and unemployment is low.”

According to Nikko Asset Management investment analyst Chris Rands, falling house prices are largely due to tightening lending standards, and there’s no reason to panic.

“While the performance of house prices has been poor, we don’t believe this is reflecting housing stress. Rather it is due to tightening lending standards, which are constricting credit supply. While this means house prices can continue to fall over the next 12 months, it reduces the risk of a crisis occurring through the housing sector,” he said.

While Australian households are some of the most highly indebted in the world making them “vulnerable to risk”, as long as interest rates remain low and mortgage repayments are affordable “there are few signs that the declines in house prices are being driven by household stress”,  Mr Rands said.

“This means that while house prices can continue to fall, it is less likely that it will turn into a widespread problem causing large-scale defaults.”

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