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A sign of Sydney, Melbourne house prices could fall further

You may have heard rumors that the housing market will take off, that falling prices are finally over and the time to buy now.

It will be easy to get excited, take your deposit and finally dive. But is it still too fast? Watch Out.

Because there are some tentative signs that in Sydney and Melbourne, housing prices are falling back. Earlier this year the decline in house prices eased. But the latest data shows the decline in prices seems to have increased again in late April / early May.

The next chart uses a daily home value index created by CoreLogic. As you can see, the speed of declining house values ​​varies. At one point, the values ​​in Sydney fell so fast that if they were maintained for one year, the value would fall by 25 percent. At other times they fall at a level equivalent to an annual decline of only a few percent.

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From New Year's Day to near the end of April, the fall rate seems to be declining. The waterfall is getting slower and softer. You can see the ascending line keeps returning to zero. The values ​​in Melbourne even seem to rise again for a while, because the dark blue line is above zero.

But around the end of April, something changed. The fall of Sydney seems to be getting faster. And Melbourne also dives.

In Adelaide, Brisbane and Perth, the pattern is somewhat different. Perth values ​​declined until the end of February, before being moderated. The value of Adelaide homes is largely stable and Brisbane seems to have had a slight easing in falling prices in recent weeks.

It is important to understand the CoreLogic daily data behind the graph above. The index uses information about selling prices to deduce the value of all houses, including those not for sale. That means this index is the approximate value of all houses, not just those on the market. It is updated daily with not only data about sales prices but changes in existing homes, eg newly built apartments or old houses were destroyed.


Data can tell us what just happened but cannot tell us what we really want to know – the future. So will prices continue to fall or will the market recover? There are many moving parts. One support for home prices is that the RBA is likely to cut interest rates. That should make a mortgage cheaper and make people spend more on the house.

But look deeper. The reason the RBA will cut interest rates is because the economy shows signs of weakness. On Thursday, the latest unemployment data came out and it showed an increase in unemployment, a rise in underemployment, and a mix of jobs shifting from full time to part time.

With a record of high household debt, weak wage growth and now an increasing unemployment rate, it is difficult to see how much enthusiasm for large spending on property.

Another big factor affecting house prices is policy. Labor has pledged to make two policy changes – for negative gearing and capital gain taxes – both of which can affect the property market.

Their goal is to make housing more affordable. If Labor wins elections, their new policy will start on January 1, 2020. That could cause some people to try to rush to the property before changes take effect early next year, creating a strong market appearance before gravity returns.

The effect of this policy change does not seem to be too large as a whole, but can affect certain types of property. Labor will only end with a negative gear on existing properties. That is likely to reduce investor demand for the property and increase investor demand for new homes. With less competition for such property, the price in that category can go down, and more houses can end up in the hands of the occupying owner.

This is an interesting time to watch the housing market. Anything can happen. If you buy or sell, you must pay attention – as the graph above shows, trends in the market can change very, very quickly.

Jason Murphy is an economist. He wrote the blog Thomas the Think Engine.

Continue the conversation @jasemurphy

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