Australian house prices fell 3.5 percent in the 12-months to November 2018 according to property price tracker Corelogic-RP Data. Corelogic has traditionally been seen as somewhat optimistic in their recording of house prices, but even they have been ringing the bell on declining prices for a while now.
There are many explanations for Australia’s falling prices, and most of them boil down to years of above trend growth, and the current rising interest rate environment. Regardless, it is undeniable that prices are falling, and that is causing profound changes in the market.
During the past 12-months, total property listings have risen 9.8 percent, which mostly reflects the fact properties are selling at a far slower rate than previously, as auction clearance rates fall, and bank funding becomes harder to secure.
However, NEW listings have actually fallen, 3.2 percent in fact, over that same 12-month period.
CoreLogic defines new listings as properties that have not been put up for sale within the past six months. The drop in new listings is an indication that weak market conditions are discouraging homeowners from selling.
Auction clearance rates across the nation have declined from around 65 percent for 2017, to around 45 percent in recent months – their lowest levels in around seven years.
The decline in auction success is pushing many sellers towards private sales, with Head of Australian Economics at the National Australia Bank, David Plank, remarking that “auctions lose favour in a weakening market.”
Emma Bloom, a buyers’ agent for Morrell and Koren, concurs, stating that Agents that last year sold 80 per cent by auction and 20 by private sale have reversed the ratio in recent months.
Despite the price falls, first home buyers are still not flooding into the market. In fact, according to Martin North of Digital Finance Analytics, the number of first home buyers intending to buy has actually halved in the past three months, due to the expectation of further declines in house prices.
Given that there has been a substantial shift in a property market that has trended higher for so long, it is not surprising we are see some changes. In summary there is:
- A build-up of listings, despite new listings falling
- Increasing difficulty in securing bank funding
- A shift to private sales, as auction clearance rates fall
- A drop in interest from first home buyers, who feel prices may fall further
Whilst things aren’t looking overly good for property investors at the moment, with many indications of a weak market, they should feel encouraged by the recent history of the Canadian housing market. The Canadian market has been preforming similarly to Australia for the past decade, but shrugged off weakness from last year, to resume rising once again.