When markets begin to fall, ever-resilient investors begin to ask if it’s already time to buy.
If you follow the advice of economists and analysts, then the smart way is don’t rush as more challenges are still ahead. But if you follow history, then this is merely another glitch on a history-making market. Though both sources are very tricky, they are often relied on.
What is the situation that investors face?
The latest house price report from the Domain Group says that house prices in the country declined 1.2% over the past quarter, with the national median declining to $809,201 from a record high posted in the past quarter.
Meanwhile, annual price movement is still in the upbeat zone, but the 2.3% growth is the lowest posted since 2012.
Sydney, Australian investors’ hottest pick, reported a 2.6% drop from media house prices in the March quarter and posted its first year-on-year decline in six years. Meanwhile, Melbourne saw a 1.0% increase 0.1 in the quarter and 8.8% over the year – holding on to its 22nd straight quarterly increase record by a slim margin.
The macro-economic observations are very negative as well, with regulators instituting stricter controls on lending; the banking royal commission presenting the possibility of more restrictions, forecasts of increasing interest rate, and economists forecasting more house price declines in the future.
Economists predict more challenges
A correction in Australian house prices is expected to last two to four years. However, the long-term price increase seen in property markets makes the decline seem small.
Following impressive gains over the last 10 years, prices in Melbourne and Sydney could be priced too highly by as much as 25%.
This potential issue could be addressed by house values declining significantly, or a fixed period of extremely minor house price declines and increasing income growth. This is scenario is what economists are offering.
There are other experts who have offered forecasts for the future of the property market.
According to AMP, Sydney and Melbourne house prices could decline by 5% in 2018, but no crash. Morgan Stanley, meanwhile, forecasts sluggishness for the rest of 2018.
In contrast, ANZ economists believe that all challenges are over and forecasts a 2% increase in 2018 and 4% in 2019.
Is the worst over, or another glitch?
A thinned-out group of property investors will need to determine if a post-golden era of investing is beneficial. This is true if we look at history.
A world record was recently posted by Australian house prices when growth reached 6556 % in 55 years, according to data from the Bank of International Settlements and cited by UBS, with gains averaging 8.1% annually during that period.
Prices increased twofold every nine years. It was deemed the world’s longest increase during that period with no downswing. Downswing means a steady price fall of three years.
And more currently, history has shown that price declines tend to be fairly fast and negligible.
There have only been three falls in the national year-on-year property prices in the last 15 years, according to data from Domain Group. And in that period values haven’t declined by over 19% in one quarter.
Though Australia’s present economic, debt and housing situations are very different from the past, positive tax laws continue to drive investors towards housing. Meanwhile, population growth continues to be robust, which indicates plenty of prospective tenants, and employment figures continue to be strong, which denotes people would be able to pay rent.
There are plenty on the line for short-term investors, though there will be despair for a few bottom-pickers. However, plenty will remain very satisfied property investors.