A recent article published by Jon Giann1, Director at Knowledge Source, shows that while all the headlines shout that the property market in Australia is in decline, this masks the fact that the majority of the market is still growing, with some parts even going ‘gang busters’.
Before getting into the detailed analysis there are two points to make according to Jon: “Firstly we have had seven property market declines in the past 30 years, so one every four years or so. The property market moves in cycles.” Secondly, this current decline is so far, one of the “tamest cyclical downturns in history”.
The property market is divided into the following segments: ‘Top End’ – the most expensive 25% of houses, the 50% in the ‘Middle Bracket’ of prices and the 25% which are ‘Cheaper’ properties.
The graph below shows that prices in the Top End are falling. This is what has captured all of the headlines. However, the Middle bracket is still experiencing price increase, albeit at a slower pace. At the same time prices in the Cheaper segment are going strongly.
So while prices are only easing in the Top End segment, they are falling far enough, fast enough that they are pulling down the aggregate numbers and are creating all the media headlines.
Why is this happening?
We think that the key driver of the price decline in the Top End is the tightening of bank lending criteria experienced recently.
We anticipate that with the coming wave of interest only loans switching to principal and interest, we will see the price trend begin to impact on other sectors of the market.
What should you do about it?
Times of higher price volatility present increased opportunities for risk and reward for investors. Make sure you are well informed before progressing with any property decisions – whether that be to buy, sell, hold or refinance.
When the market is in decline there are often good opportunities to buy an investment property or upgrade your home. The reduction in prices at the Top End particularly provides interesting opportunities for long term investment.
1. Jon Giann, Director at Knowledge Source, Ivanhoe, Victoria.