The recent property market downturn is a real-life experiment about how far the price can fall when buyers and sellers are nervous.
The magnitude of price declines varied across capital cities, local government areas and suburbs, which are determined by supply and demand, and more importantly, the market sentiment.
At the peak of the market, all economic indicators were in good shape:
Low unemployment rate
High economic growth
High population growth
Favourable macroeconomic environment and global economic stability
Buyers were in the position of Fear Of Missing Out (FOMO).
However, property prices skyrocketed with double digit growth for many years, which were not based on economic fundamentals, in particular, affordability.
House prices in Sydney went up by 90% and in Melbourne went up by 60% over the 2012-2017 period.
The federal and state governments were concerned about a market bubble and immediately implemented a suite of policies to contain the market, including:
Higher stamp duty on foreign purchases
Tax on vacant properties
More prudent lending practice
Cut immigrant intake.
These policies immediately reduced the pool of buyers and their ability to pay, which softened price growth and eventually prices started to fall. Similar to any financial products, everyone wants to get out of the market when the price falls and, vice versa, everyone wants to get in when the price increases.
Since December 2017, the property market has experienced a prolonged declining period, where Sydney and Melbourne in particular, have decreased by approximately 12%.
Looking at individual suburbs at the major metropolitan local government areas/cities, prices in Willow Vale, a suburb of Gold Coast, Queensland fell the greatest, by 51%, St Kilda, a suburb of Port Phillip fell by 31%, and many suburbs in Sydney and Melbourne fell by around 20%. Overall, across the price range, premium properties fell more than the entry point price segment.
Price fluctuation is natural market DNA. However, the key for property investment success is to source properties in desirable locations with unique characteristics. These types of properties have weathered many storms and have increased in value over the long-term.
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