The Melbourne market may get tough but it may not get as bad as some predict. According to Secret Agent, media often plays on median price movements with actual market fluctuations but the truth is, if the median moves up or down, it is actually not an indication that the market is moving as well.
Property price drops are forecast in Melbourne in 2017 because of car manufacturing job losses and overbuilding of houses and apartments.
The market will be influenced by international and federal events but however the Australian property markets turn out in 2017 and 2018, there are many reasons to expect Melbourne to be a bit below that.
Property markets could collapse when people have no choice but to sell their homes and no one is willing to buy. Home prices in Melbourne are expensive and while other markets have stalled, it does not mean property values will crash in the big capital cities.
This point is unlikely to occur when population is growing, as Melbourne continues to attract over 100000 new Victorian each year and all needing some form of housing.
A true collapse could be caused by a high unemployment rate that will trigger many forced home sales.
This means we have to create more jobs to avoid a collapse. Another cause could be high interest rates which would cause homeowners to default on their mortgages. This may not happen soon with the money markets factoring in low interest rates in the next 10 years.
Interest rates may rise in the short term due to overseas interest rate pressure, the RBA being less influential on the direction of bank interest rates in recent times, and the major banks wanting to restore margins after four years of vying for market share.
A credit squeeze may also cause our property markets to collapse.
Australia’s banking system is underpinned by residential property lending but this is unlikely because banks want to keep house prices stabilised and rising.
APRA has been very diligent over the last 18 months ensuring all the major banks have addressed their liquidity ratios and has convinced all the banks to curb investor lending to avoid over heating of the property market. The signs of this intervention are evident.
Other possible causes include severe recession or oversupply of property, a slowdown in population growth and foreign investment in Australia and changes to government legislation making property investment less favorable.
With all these, our property markets won’t likely crash in the near future because of the rise of our population, a healthy economy, a sound banking system, rising business and consumer confidence, a culture of home ownership and a healthy level of household debt.
While there are reasons why our property markets won’t crash, there are reasons why it could as well. We should remain vigilant, take advantage of opportunities and protect our interests at the same time.
For more information about property investment in Australia, contact a Specialist to discuss your particular circumstances.
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