Kathryn Lee - 11 Jan, 2019

Australian house prices at their weakest since 2008

Scroll Down

Economic data recently released shows that Australian house prices continue to fall. These drops in home values signify the Australian housing market is now at its weakest point in a decade – the lowest since the 2008 Global Financial Crisis (GFC).

So, why have dwelling prices fallen and what does this mean for you as an Australian home buyer?

Report findings on Australian house prices

The December 2018 Home Value Report indicates that the decline of the Australian housing market’s value gathered pace during 2018. This situation comes as no surprise as Sydney and Melbourne, which make-up around 60% of the national market, sustained drops of 8.9% and 7% respectively during 2018. Perth also recorded a loss of market share with a decline of 4.7% over the same period, and Darwin recorded a 1.5% loss. As a result, national dwelling values during 2018 fell by 4.8%.

The December housing market results also indicate that national dwelling values dropped a further 2.3% over the quarter – the largest decline recorded since December 2008.

Dwelling Values December 31, 2018 (All Dwellings)

Why have Australian house prices fallen?

Economists suggest there are many reasons why Australian house prices are falling, while noting these declines are only found in some areas and not others.

Performance across the housing market was diverse during 2018. Economists explain that the market varied considerably depending on location and price points.

Top 10 & Bottom 10 Sub-Regions for Annual Dwelling Value Change

Hobart, Canberra, Brisbane and Adelaide recorded the strongest capital city performance. In these regions, dwellings are typically more affordable making them relative to household income. However, data shows that seven of the ten top performing regions displayed a gain of just 3%, which indicates that even the best performing areas are showing signs of weakness. Economists indicate that this soft result signifies a broad housing market weakness that’s not just confined to Sydney and Melbourne.

Why is there a broad weakening in the housing market?

Market observers suggest that the slump in the housing market is now due to more than a market correction. These experts believe that tighter lending conditions have impacted on Australia housing prices, with a drop in investment buying.

Another factor that is impacting the market is the number of dwellings up for sale. Australian housing supply is currently higher than buying activity, creating a buyer’s market.

Based on this information, economists are now indicating that Australia housing prices may fall a further 10% during 2019. These price drops will be partly linked to the Federal Election as Labor proposes changing negative gearing legislation.

Given these facts, how do these changes affect the national economy?

How Australian house prices affect the economy

Australian lenders and the government don’t want Australia home prices to fall as dwellings are major household assets, which mean when their value drops families are put under greater financial pressure.

This is because when home values decline, financial institutions are less likely to finance mortgages because the risk increases. Fearful of not being able to pay the mortgage, households become less likely to spend. When households don’t spend, businesses don’t need as many staff, which results in higher unemployment and mortgage defaults. The drop in Australian house prices could therefore have a significant impact on the nation’s domestic economy.

However, to combat this scenario, the government, which benefits from higher property prices (resulting in higher stamp duty, land tax and rates), has removed lending restrictions. The Australian Prudential Regulation Authority (APRA), which operates as part of the Australian Government, recently announced that interest-only lending and the 10% annual growth cap on investor lending would only apply to lenders that didn’t meet their growth benchmark.

How can current Australian house prices benefit home buyers?

While falling Australia home prices sound daunting, property experts say that there’s no need to panic. Sure, those negative housing market headlines paint a worrying picture. But the truth of the matter is that unless you’re forced to sell, then this fall in property value is nothing more than the typical ebb and flow of the housing market.

Just think back to a few years ago, when first homebuyers were struggling to enter the market. Now, first home buyer numbers are at their highest since 2012, thanks to falling Australian house prices.

Whether you’re a first home buyer, looking to buy again or an investor, now may be the best time to look at purchasing property. eChoice’s expert brokers can help you understand the market and simplify the process of applying for a mortgage. We have access to hundreds of products, so we’ll find you a competitive rate.

Click to compare over 25 lenders

St.George Bank
Commonwealth Bank
Macquarie Bank

You might also like:

Get your tailored home loan report. Start Now