House prices falling at fastest pace since the GFC

Australia’s housing downturn gathered pace in November, driven by an acceleration in price declines being reported in Sydney and Melbourne.

CoreLogic’s Home Value Index fell by 0.7 per cent in average weighted terms, leaving the national decline over the past year at 4.1 per cent. The percentage fall last month was the largest since December 2008.

The pace of price declines were even larger in the capital cities with median values falling 0.9 per cent from October in weighted terms, extending the drop over the past 12 months to 5.3 per cent.

 In the past year, capital city home prices have now fallen 5.9 per cent in average weighted terms, significantly faster than the 3.7 per cent drop in unit values. The median price for capital city homes fell by 1 per cent over the month, faster than the 0.7 per cent decline in apartment values over the same period. In the past year, capital city home prices have now fallen 5.9 per cent in average weighted terms, significantly faster than the 3.7 per cent drop in unit values.

In contrast, home prices in regional areas fell by a smaller 0.1 per cent last month, trimming the gain over the past year to 0.3 per cent.

“Nationally, dwelling values are down 4.2 per cent since peaking in October last year, with dwelling values retracing back to levels last seen in December 2016,” CoreLogic head of research Tim Lawless said.

Helping to explain the acceleration in national price decline last month, median values in Sydney and Melbourne fell by 1.4 per cent and 1 per cent respectively from October, a noticeable increase from the levels seen earlier in the year.

The decline in Sydney was the fastest since May 2004, leaving the nominal fall in prices over the past year at 8.1 per cent, the steepest since May 1983.

“The downwards pressure on national dwelling values is largely confined to Sydney and Melbourne which, together, comprise approximately 55 per cent of the value of Australia’s housing asset class,” Mr Lawless said.

“The ramp-up in housing supply has been more pronounced in these markets against a backdrop of slowing demand, and Sydney and Melbourne have also been more affected by the reduction in foreign buying activity.”

And with demand softer and new supply continuing to increase, Mr Lawless said total property listings now sat at elevated levels compared to those seen in the past.

“Advertised listings have surged higher, providing buyers with ample choice which provides for a strong negotiation position on price” he said.

“The rebalancing towards buyers over sellers in Sydney and Melbourne is clear across CoreLogic’s vendor metrics, with clearance rates tracking in the low 40 per cent range while private treaty sales are showing substantially longer selling times and larger rates of discounting than they have over recent years.”

With so many homes currently up for sale in these cities, the recent pick-up in price declines suggests some vendors are choosing to lower their price expectations in order to secure a sale before a seasonal slowdown in market activity over summer months.

However, while median prices also fell in Perth last month, declining 0.7 per cent, Mr Lawless said the weakness in Australia’s largest and most expensive cities masked far more resilient performances from Australia’s smaller capital city markets in November.

“Conditions across the Australian housing market are increasingly diverse,” he said.

“Dwelling values are trending higher across five of the eight capital cities, albeit at a relatively slow pace compared with the previous surge in Sydney and Melbourne.”

So while the national price measure is continuing to weaken, that is largely reflective of price falls in Sydney and Melbourne, rather than declines across the broader country.

Mr Lawless said these trends were likely to be repeated in the short-to-medium term.

“We expect headwinds for tighter credit will continue for the foreseeable future and will continue to temper housing market activity,” he said.

“This will be especially the case for those markets where investment demand is most concentrated, and where housing costs are high relative to incomes, such as Sydney and Melbourne.”

However, in the absence of an unexpected sharp slowdown in the economy, leading to the potential for weaker employment growth, higher unemployment and potential softening in migration levels, or a spike in mortgage rates, Mr Lawless said the current economic backdrop should act to support home prices in the period ahead.

“Despite the recent out-of-cycle 15 basis point rise in mortgage rates, the cost of debt remains at the lowest level since the 1960s,” he said.

“From an economic perspective, GDP is tracking above expectations, unemployment is at the lowest level since 2012, population growth is strong and wage growth is slowly lifting from a low base.

“The factors should help to support housing demand and offset a more material decline in dwelling values.”

For those looking for more granular details on price movements over the past month, quarter and year, this table from CoreLogic has plenty of information for those across the country.

This story first appeared in Business Insider. Read it here or follow BusinessInsider Australia on Facebook.

Small real estate speculators usually get wiped out very quickly during a market correction. I call a speculator someone who’s buying and selling homes on credit. Meaning, they borrowed money to finance their purchase and renovations. Therefore if the market changes and the house doesn’t sell, they get what’s called “squeezed” from both ends. Number 1, they must reduce their asking price, they’re paying interest, insurance and carrying costs monthly which reduces their profit even further.

A non-speculator uses private money where there are no payments due until the property is sold. Or, he uses his own capital and bites the bullet until the property is sold. The non-speculator usually makes a bigger profit than the speculator simply due to less overhead and less financial liability.All speculators are gamblers. Some gambles pay off and some don’t. 

It appears there is probably a price correction happening worldwide. This is basically an early sign of such an event kind of like the canary in the coal mine. Certain areas of the country react differently to market changes. But make no mistake about it, unfortunately, a correction will wipe out 95% of the small mom and pop speculators. Always remember, the bigger they are, the harder they fall.