- 31 Mar, 2016

March 2016 Property Market Update: Is a Property Price Crash Looming?

Theres a lot of discussion over a property market price crash. But, March figures indicate that the market is remaining consistent. Lets look at the data, then discuss property market concerns.

March Property Market Data

At the beginning of March, all capital cities, apart from Perth, saw property price rises. This is said to be offsetting the slowdown witnessed at the end of 2015.

Price changes for all capital cities to the 6th of March were as follows:

Capital Price Change Price Change Price Change
Last Month Last 3 Months Last 12 Months
Sydney 0.81% 0.32% 9.36%
Melbourne 0.57% 4.07% 11.14%
Brisbane 0.75% 1.87% 5.11%
Adelaide 2.36% 0.87% 3.67%
Perth -0.19% 0.42% -2.44%

Source: RP Data-Riskmark Daily Home Value Index – All Dwelling Types

Auction clearance rates during March, were around 70% in Sydney and Melbourne, just under 70% in Adelaide, and around 50% in Brisbane. Perth recorded an 18% clearance rate.

Price changes recorded to the 14th of March were as follows:

Capital Price Change Price Change Price Change
Last Month Last 3 Months Last 12 Months
Sydney 1.10% 1.05% 9.20%
Melbourne 1.50% 4.28% 11.61%
Brisbane 0.33% 1.85% 4.98%
Adelaide 2.83% 1.36% 4.08%
Perth 0.80% -0.66% -2.76%

Source: RP Data-Riskmark Daily Home Value Index – All Dwelling Types

Are We Heading for a Property Price Crash?

Economist, Shane Oliver, says that concerns over a property market price crash have been around since the end of last decade. In 2004, The Economist Magazine labelled Australia as Americas ugly sister. This was due to the Australian property market having soaring prices and many of us going on what can be referred to as a borrowing binge. At this time, it was estimated that Australian property was more than 50% overvalued.

With the Global Financial Crisis (GFC), came talk of a property price crash in Australia. This crash was supposed to take down the banks and the Australian economy. However, views since the GFC have changed. While the Australian property market is still overvalued and we have a high level of household debt which makes us vulnerable, there has been no trigger for a crash.

In fact, not much has really changed over the last decade, apart from banks tightening lending standards, which has protected us from a lending crisis. Unlike America, Australia has not seen a rise in low-doc or sub-prime home loans. Instead, the rate of these types of loans has fallen and loans with a high loan-to-value ratio have also decreased.

Lastly, Australians are showing no real signs of mortgage stress. Debt repayments are relative to income, and record low-interest rates are enabling many Australians to get in-front with mortgage repayments. So while home loan sizes have increased due to an overvalued market, most Australians are focusing on reducing their debt once they have it.

Sure property prices in mining boom regions are falling, but this was to be expected due to a fall in demand as mining winds down in these areas. As a result, Perth and Darwin will continue to see property prices fall.

Changes to property investment lending by the Australian Prudential Regulation Authority (APRA) has also slowed market price growth in Sydney and Melbourne. But, this is what new legislation was designed to do. Plus, the market in these areas is continuing to remain positive. Nationally, Adelaide and Hobart are expected to continue to see a moderate price growth, and Brisbane is likely to pick-up.

Overall, it is highly unlikely that property price falls will occur until the Reserve Bank of Australia (RBA) start to raise interest rates. At present, this is not predicted to occur until at least 2017.

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