Cyclical property price fall of real estate in Sydney accelerating blog image

Cyclical property price fall of real estate in Sydney accelerating

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According to the Australian Financial Review, falling prices for real estate in Sydney is close to reaching its average downturn decline at only midway through the average downturn cycle.

While the average decline for real estate in Sydney is 14 quarters, the present downturn has gone on through six quarters to December 2018.

However, when removing the impacts of inflation, real median prices are actually down 16 per cent. This could mean Sydney may possibly find the total real price decline surpass the average downturn of 21 per cent.

Real estate in Sydney real price movements image

According to Angie Zigomanis from BIS Oxford Economics who has evaluated five cycles since 1965, “So far, the period of decline in these two markets has been much shorter than the longest downturn duration and around half of their respective average downturn lengths in both the house and unit markets.

“It is foreseeable that the current downturn in the Sydney and Melbourne markets may have at least another year to run before reaching the cyclical trough.”

Nonetheless, Mr Angie believes that the likely scenario at the end of this year is a flattening of prices for real estate in Sydney without having a quick upward improvement.

Comparing past downturns

When comparing the current price declines to previous downturns, it hasn’t been such a sharp ride down, unlike the 1982 and 2008 downturns. In addition, contrasted to the 1989 and 2010 downturns, the current downturn has not been a specifically long one. These are clearly shown below. The black line represents the present movement of property prices at the national level.

Australia peak to trough declines image

Nonetheless, the decline in real estate prices is far from over as prices are predicted to fall for another 12 months. Should this happen, this will certainly be the most significant and lengthiest decline that has been documented.

The good news

Even though this current downturn may be one for the record books, there are a few significant qualifiers to consider in regards to the current property downturn.

To begin with, the country is coming from the biggest boom it has ever had. We had experienced the greatest and the most prolonged bull run in the real estate market’s history. Therefore, an equally historic correction is expected.

In addition, the impression between cities is quite different as shown below comparing Sydney to Perth.

Sydney peak to trough declines image

Perth peak to trough declines image

On the contrary, Adelaide and Hobart are actually standing firm. Therefore, there are various pictures emerging throughout Australia.

Furthermore, the country is far from a real estate “crash”. The current downturn has been mild compared with the previous crashes of the U.S., Ireland, Spain, and the U.K.

Housing bust comparison image

Also, the U.S. and Ireland’s collapse were caused by the near breakdown of their whole financial sector. Therefore, unless a similar event happens here, there is no need to worry. We are far from anything which could be properly called a property crash.

 

Speak with a Chan & Naylor property tax accounting specialist here today to get the best guidance for your property investment.

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