“The rate of fall is much worse than what we saw during the previous recession. Affordability is spreading more, household debt is higher, and then this double factor of inflation and rising interest rates. ‘interest is more impactful,’ says Tim Lawless, Asia-Pacific research director at CoreLogic.
This means that the most important factor in determining when home prices will rise again is interest rates and when the RBA will begin a cycle of cuts once again.
“When we see interest rates start to level off, which will probably be in the middle of next year, if not sooner, this is probably the signal that housing markets will start to stabilize,” he says. Lawless.
Two signs that we could be approaching the peak of the interest rate cycle are that inflation is starting to fall towards its target range of 2-3% and that the narrow labor market is starting to loosen.
Do falls (and rises) follow certain patterns?
Yes, there are certain characteristics that real estate cycles in Australia usually have in common.
First, when it comes to capitals, you tend to see Sydney and Melbourne leading the cycle and smaller cities like Brisbane and Adelaide following them. Although there are exceptions.
“Perth, for example, is quite disconnected and much more driven by the raw materials cycle and large infrastructure projects, and the same with Darwin. And then there are the regional markets that are more agricultural, for example, and are more divorced from the broader trends, ”Lawless adds.
The head of research and economics at the domain, Nicola Powell, says Sydney and Melbourne tend to record larger price changes compared to other capital cities because homeowners are more sensitive to changes in economic conditions.
“In general terms, it’s where incomes are higher, households are more indebted and there’s more investment activity proportionally … so you tend to see bigger fluctuations, both in price gains in a rebound, but they are also more vulnerable in a fall, ”the doctor said. says Powell.
What if deep at the city level?
Along the same lines, suburbs and higher-priced regions within a city are often the first to show signs of a slowdown or a rebound before they spread to other places.
The eastern suburbs of Sydney hit a house price peak in June 2021, so the eastern suburbs have already recorded three consecutive quarters of house price falls.
At the lower end of the market, in regions such as Blacktown, Central Coast and south-west Sydney, house prices continue to rise.
So if you’re trying to pick the bottom of the cycle, keep a close eye on the higher-priced areas, Dr. Powell says.
“When we move to a recovery phase, we are likely to pick it up first at the upper end, and the eastern suburbs are one of those areas,” he adds.
How Long Do Real Estate Falls Normally Last?
A recent analysis by Domain that observed the length of market cycles in Sydney, found that falls tend to last less than half the time (in months) than the previous rebound.
“The falls are shorter and less severe than what was seen in the upturn, overall,” says Dr. Powell.
For example, the real estate boom between 2000 and 2004 lasted 42 months until it reached its peak, while during the ensuing fall, it only took 18 months to lower peak prices to the next low.
Lawless notes that during all the low phases, the annual gain in home values in the 12 months prior to the market peak has been equal to or greater than the entire maximum to minimum drop that follows.
“For a period of two years before each peak in the market, capital gains were always more important than the subsequent maximum and minimum fall,” he adds.
Is it possible to choose the market fund?
Lawless says people should time their decision to buy a property according to their circumstances and budgets.
“The reality is that trying to pick the top and bottom of the market is impossible,” he says.
However, there are several key indicators, a combination of macroeconomic and housing market factors, that the market may be at the peak of a turnaround.
How consumer sentiment is tracked (as recorded in a weekly ANZ-Roy Morgan survey and a monthly survey by the Westpac-Melbourne Institute) offers a timely and “near-perfect” correlation with the consumer market. housing.
Any improvement in the mindset of consumers (a person’s willingness to buy an important item for the home or their view of family finances over the next 12 months) will give you an indication that things are also starting to improve by in the real estate market.
“The correlation isn’t perfect, but it’s almost perfect,” Lawless says.
“It really stands out that as consumers feel more pessimistic about their own balance sheets, about interest rates, about their employment prospects, this has a negative effect on housing demand.”
Property indicators include the number of listings, the average time of sale of properties, as well as the discount rate of sellers.
The number of attendees, as well as the number of bidders, at the auction, as well as the auction settlement rates (the percentage of properties that have been sold at auction on a given weekend) offer a good barometer of the market, adds Dr. Powell.
“Sixty percent is considered the benchmark for settlement rates, so if they fall below what normally shows that the market is correcting, and we’ll see prices fall, and obviously the other way around, when get about 60 percent “.
Sydney’s auction clearance rate last week fell to 49.9%, the first time it had fallen below the 50% mark since mid-April 2020.
Is it better to sell or buy first in a crisis?
There is no single answer to this, but because the top end of the market tends to lead the fall, it can create a “sweet spot at the moment” for a particular segment of buyers, the updater, says Dr. Powell.
If you are buying in a market where prices are falling first, it is best to sell your home (smaller, less valuable) while prices are still firm, and then buy in the high end market once prices have continued to fall .
Of course, this scenario doesn’t take into account how difficult it can be to find a new home, and once you’ve sold it, you could be left in the lurch.