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Property market defies predictions with only minor price falls

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By John Beveridge - 
Property market defies predictions minor price falls Australia

If anyone needed a reminder about the futility of trying to predict the future, the Australian property market stands out as a prime example.

We have now witnessed yet another example when the groupthink prediction was for property price falls of 20% plus but the reality is that falls of this scale have simply failed to eventuate.

Despite rapidly rising interest rates that prompted a rash of alarmist warnings about calamitous property price falls as heavily indebted Australians were forced to sell, the result on CoreLogic numbers was a fast but fairly controlled 7.5% fall over nine months from the peak, followed by a resumption in national growth.

The previous slump in 2017 to 2019 was a smaller fall of just 6.3% but over a much longer period of 19 months.

Those 20% price falls never happened

The lesson to be learned from these two sets of falls when experts were almost universally frothing about property price falls of 20% or more is the absolute folly of predictions although the result is now a conga line of the same banks and experts predicting that there could be a double dip in the property market as the pace of price growth falls.

Of course, anything can happen but since bottoming out in January, national home values have recovered by 6.6% and are just 1.3% away from hitting the all-time highs recorded in April last year, just before interest rates started rising.

For individual markets, Sydney recorded a peak-to-trough drop in values of 12.4% but has recovered hard with a 10.6% rise to be just 3.1% below the record high in January 2022.

Melbourne represents a more modest rollercoaster, falling 7.9% from the March 2022 peak and recovering 4.3% since the January 2023 bottoming – just 4% below last year’s peak.

Supply restricted itself, limiting price falls

What has confounded the predictions is a very nimble response on the supply side at a time when continuing immigration and slower building is also keeping the market tight.

Once prices dip a little, sellers have been happy to wait until they recover before selling – something which doesn’t take long when you have plenty of demand and not much supply.

Also confounding the pessimists who have pointed to fast rising interest rates has been a surprising lack of severe mortgage stress and forced sales after the unusual spectre of continuing strong rental increases and scarce rental supply left home buyers even more determined to stay in their house even after the cost of the mortgage skyrockets.

With the number of properties for sale down around 30%, that led to more competition for the houses that were for sale, helping the prices to recover quickly.

Are we in for a double dip? Best not to guess

Still, there is no shortage of pundits warning about the dangers of a double dip in house prices once the market come to terms with the likelihood that higher interest rates are here for longer than anticipated, meaning that new buyers can’t simply assume that their mortgage payments will fall fairly quickly.

There is also the possibility that recovering prices will cause more potential sellers to finally pull the trigger and sell their property, although there is little sign yet of a flood of listings causing prices to head south again.

For me, the takeaway lesson is to never put too much stock into forecasts – even those made by “experts” and supported by a rash of seemingly compelling data.

The future truly is unknowable and there are always risks posed by unexpected events that can literally appear out of nowhere.

It is much better to keep borrowings under control as much as possible and to play the long game when it comes to investing on all sorts of markets.

Panicked selling and buying of almost all assets is rarely advisable, no matter how dire the predictions are, with the ability of markets to find a way to “muddle through” even seemingly severe crises often the most likely scenario.