It's no secret that Australian property prices have been dropping for the past few months. Are Real Estate Prices Falling Or Stabilizing? To answer this question, we need to first understand why prices are falling in the first place.
The issue is more widespread than it appears though and there's a real chance that the country's real estate market may crash in the near future. This article will discuss whether or not there is a crash on the horizon in Australia and its implications.
Are Real Estate Prices Falling Or Stabilizing?
To answer this question, we need to first understand why prices are falling in the first place. The main reason for this is because of macroeconomic factors like low wages growth and tighter lending policies which impacts on borrowing capacity. The other major reason is because of affordable housing policies in most cities that have impacted demand by encouraging more people to buy rather than rent.
Lastly, there are also microeconomic factors like decreasing demand from international investors who have less appetite for risk as well as an increased supply of properties thanks to new regulatory restrictions like a vacant homes tax.
"This could be a classic case of what goes up, can come down," said Ray Ethell, Low Doc Mortgages research director. "However, the drops aren't likely to come close to the huge property prices gains over the last couple of years".
What Could Trigger A Real Estate Crash in Australia?
The most likely cause of a real estate crash in Australia is if the country's current housing market does not recover. There are a few factors that could cause this, but England, America and China are probably the worst-case scenarios.
If these countries experience a housing crash, it would be Australia's turn to follow suit. This will occur if Australia's housing market remains stagnant for too long or becomes increasingly unaffordable for locals to purchase. Inevitably though, this will lead to a massive fall in prices as investors take their money elsewhere. The next three years should be interesting as Australian real estate investors lose faith in the country's property market and divest from it completely.
Debt To Income Ratio
The Debt to Income Ratio is a method that lenders use to estimate whether a loan can be afforded or not. It takes the amount of debt and divides it by income. In Australia, the Debt to Income Ratio has been steadily increasing for many years now. It's currently at 112 percent on average and 36 percent in Sydney, which is the highest in all developed countries.
So does this mean that real estate prices are going to crash? No. It just means that these high debts will affect demand for housing because people with this high level of debt simply won't be able to afford homes without jumping through hoops. They need to make more money to get bigger loans in order to afford their mortgages. This would mean there would be less demand for property which could lead to a flattening in prices and possibly a crash in the near future.
Falling Demand From International Investors
The main reason for this is because of a decrease in demand from international investors. These investors have less appetite for risk, which has caused them to lower their investment in the Australian property market. In previous years, foreign investors accounted for about 8 percent of all investor demand. In 2021, however, they only accounted for 1.3 percent of all demand.
Vulnerable Households And Rising Rates
Households that are vulnerable to a price crash will be those that are either on the brink of financial ruin or have very small savings. The latter is not as common because people tend to save in the form of investments rather than cash. But, with only six percent of households being financially vulnerable, it's likely that these households will see their debt levels increase before they see their property prices fall.
It's important to note that if the market crashes, it will be an individual household's problem, not a countrywide one. With all this information, there is a real chance of a crash in Australia but it won't happen as soon as we may think.
Macroeconomic Factors
Australian property prices have been falling for a while now and their overall trend is getting worse. However, this doesn't mean that there will be a real estate crash in the near future. This is because macroeconomic factors are only one of the many reasons for this price fall. Although these economic factors are affecting the price of Australian properties, it comes as no surprise to most people in Australia as they have been occurring for a long period of time now.
The market has continued to rise in Australia and it has been a steady increase for the last few years. It's unlikely that a crash will happen, but if the market slows down, it would be prudent to take precautions.
The Australian real estate market has been rising since 2008, but there are many factors that could trigger a crash. If the Australian economy experiences a recession, or if international factors such as escalation in wars come into play, then the market could crash.
Additionally, if debt to income ratio rises in Australia due to interest rates and many people are struggling to make their mortgage payments, this could also cause a crash. The Australian real estate market is a complex one, with many factors coming into play.
