Analyzing the Australian Property Market’s Stability and Potential for Decline

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In the ever-dynamic realm of real estate, the Australian property market has often been at the center of economic discussions. Recently, a notable divergence has been observed, with Melbourne’s market witnessing a decline while other capitals soared to new heights, sparking debates about the broader market’s trajectory.

Maria Gil, in her insightful piece, “Will Australia’s property market ever go backwards?” explores this complex landscape. She highlights the unique scenario where Melbourne’s property prices have taken a surprising turn, contrasting sharply with the robust growth in other major cities.

Dr. Diaswati Mardiasmo, PRD Real Estate’s chief economist, clarifies the term “going backwards,” indicating that a significant drop to pre-COVID levels is highly improbable. “If you’re expecting [property prices] to go back to pre-COVID times, then that’s unrealistic. However, a moderate adjustment is more plausible,” she states, suggesting a nuanced understanding of market movements.

Shane Oliver, AMP Capital’s chief economist, differentiates between a market crash and a general slowdown. According to Oliver, a decrease of more than 20% would constitute a crash, a scenario not witnessed even during the deepest economic challenges of recent years. “The most we saw was like 15% in Sydney in the 2015-17 period,” he recalls, underlining the resilience of the Australian property market.

Further complicating the narrative is Dr. Nicola Powell, Domain’s chief of research and economics, who describes Melbourne as a real anomaly. Despite the city’s market going sideways, she views this as a healthier adjustment for long-term sustainability. “We’ve seen the Melbourne housing market go sideways for the last 18 months… This subdued upward movement in price is a better outcome for housing affordability,” Powell explains.

The difference in market behavior across cities, as Powell notes, can be attributed to factors like supply dynamics, demographic shifts, and fiscal policies influencing investment decisions. For instance, the greater housing supply in other cities contrasts sharply with Melbourne’s stagnation, further influenced by taxation and land tax changes discouraging investment.

Mardiasmo suggests that for other cities to experience a similar downturn as Melbourne, a significant economic shock would be necessary, akin to the disruptions seen during the COVID-19 pandemic. “Our supply is probably about three, four years behind. And so it is about slowing down that demand,” she points out, indicating the complex interplay of supply and demand affecting market stability.

As the discussion unfolds, it becomes evident that while fluctuations are part of the property market’s natural cycle, the overall consensus among experts like Oliver is that a severe crash remains unlikely unless triggered by extraordinary events. “There’s a bigger constituency that wants higher property prices than lower prices,” Oliver concludes, reflecting on the broader economic and social factors at play.

This analysis not only captures the current state of the Australian property market but also sets the stage for ongoing discussions about its future direction, balancing between growth, stability, and affordability.

References:

https://www.domain.com.au/news/will-the-property-market-ever-go-backwards-1297752/ 

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