How to know if they will fall


The telltale signs real estate prices will fall. Source: Getty

House prices in Australia fell 2% in the June quarter, but there is a telltale sign that prices will fall further, experts say.

Independent economist Stephane Koukoulas says that buyers should watch out the number of properties put up for sale, with a sharp increase likely to herald a fall in prices.

And according to REA Group Chief Economist Nerida Conisbee, a rapid increase in listings may indicate market weakness – and therefore falling prices.

“That’s because it can represent a level of distress in the market – if a lot of people are looking to sell, it could mean they’re either financially stressed (as a homeowner) or not reaching the investment goals they wanted such as capital growth or rental (as an investor), she said.

However, there is a caveat to this: more listings could also represent market confidence, she said.

“People tend to buy and sell more when the real estate market is also good,” Consibee said.

“In fact, the last time we saw a drop in listings was when the market was very weak.

“At the time of the Royal Commission on Financial Services, registrations were way down. In fact, they rebounded once the royal commission was over and confidence returned to the market.

And as the listings grew, so did the prices, Consibee said.

Will there be further declines in property prices this year?

Conisbee said the increase in listings in most places does not appear to be driven by a high level of distress and therefore may not indicate future price drops.

“Prices remain relatively stable overall – again, surprising given that we are heading into a recession and seeing rising unemployment,” she said.

According to Estate Home Price Report for the June Quarterhouse prices fell $32,000 in Melbourne and $23,000 in Sydney.

“We can see that buyers continue to be very active – both through research and enquiries.”

However, the housing market is supported by government stimulus, and if our banks stop offering mortgage payment freezes to borrowers, distress is likely to increase more quickly, she said.

And while we’re not currently experiencing high levels of distress, some markets are struggling, she said.

“That includes suburbs with a large number of apartments rented to international students — rental listings continue to grow in those areas,” Conisbee said.

“It will be a difficult market until the return of foreign students. The other market that is not doing well is where there is an oversupply of apartments, but that was a problem before Covid-19 – weak rental demand is exacerbating the problem.

Koukoulas estimates that based on current levels of demand and supply, the unemployment rate and record high interest rates, prices could fall by up to 15% in the second half of 2021.

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