Why House Prices Are Set To Drop

Depending on where you are in the property market, whispers of falling house prices will either fill you with joy or dread – but what’s triggering this change?

Why House Prices Are Set To Drop

While the past twelve months have not been so great for the average first home buyer, sellers have had extremely favourable conditions to work with. In 2021, capital city buyers across the nation forked out an average of $1,066,133 to buy a house, surpassing the million dollar mark for the first time in history. 

This astonishing figure represents an annual increase of 25.2% and a quarterly rise of 6.5%, with the latter demonstrating that the market bounced back in a big way at the end of the year following months of uncertainty linked to ongoing lockdowns and travel restrictions. 

Although what goes up must eventually come down, house prices are stalling at a faster rate that anyone initially predicted. While the property market hasn’t quite hit its peak in regional areas of Australia, all factors are pointing to a downturn in house prices in the not so distant future, particularly for Sydney and Melbourne. 

Australia’s Property Market Is Finally Set To Cool Down 

On average, Australia experienced a whopping 22% increase in house prices over the course of  2021 – the strongest annual growth since 1989. However, according to Westpac, skyrocketing property rates are predicted to stall across the nation by May and even drop by the end of the year, with the bank predicting that house prices will drop by 2% across the country for the whole of 2022. 

However, it’s worth noting that these reductions were not expected to happen until the RBA increased the cash rate. While this is yet to happen, house prices have begun to drop anyway. With buyers reaching the limits of what they can afford, banks reducing how much they will lend, and more properties being listed for sale, Sydney and Melbourne are leading the pack with falling house prices before the market has seen a single change to interest rates. 

While Australian home prices rose an average of 0.7% in March 2022, house prices in these two major cities actually fell by 0.2% and 0.1% respectively, with their growth rates in the March quarter lagging well behind other capital cities. Although the figures aren’t astronomical drops, industry experts are marking them as the beginning of the end of the Australian property boom.

One way or another, there is a limit to how much buyers can afford to pay. According to Gareth Aird, the head of Australian Economics for the Commonwealth Bank, house prices have dropped due to the budgets of buyers being stretched to their maximum. 

“The evidence is pretty clear. Although prices have peaked in the two biggest capital cities, affordability has become stretched because prices have gone up so much. There is a limit to how high they can go, and you can’t continue to grow indefinitely – that affordability picture has kicked in earlier in Sydney and Melbourne.”

However, there is one state in particular that is bucking this trend: Queensland. While this may not mean good news for everyone, annual price growth in Brisbane alone is now sitting at just under 30%, with particularly strong gains noted for standalone dwellings and top tier properties. Brisbane’s western suburbs originally led the pack, but regional areas further away from the CBD such as Ipswich, the Gold Coast and the Sunshine Coast are the locations keeping the momentum going. 

Overall, falling house prices will be linked to the tightening of lending criteria, increased interest rates, decreased affordability, international borders reopening, and the ongoing construction boom. As such, if you’re in the market to buy this year, it’s worth partnering with the professionals who can help you navigate the ever changing property market – but where do you find them?

Partnering With The Home Loan Professionals 

Navigating the complex world of home loans has long been regarded as stressful, frustrating and time consuming – but if you can find the right advice on sourcing how mortgages work, then the good news is that it doesn’t have to be.

Since their inception in 2012, the team at Madd Loans have worked tirelessly in providing over 2,000 Queenslanders with finance options to help turn their dreams into reality. With the entire brand being built on referrals, owner George Samios takes great pride in making the loan process both fun, educational and stress free – and he has a swag of awards to prove it.

If thinking about your financial future strikes a chord with you, then it might be time to speak to a professional. Whether you’re chasing mortgage solutions or a financial fairy godmother, the team at Madd work together as a collective to turn your goals into reality.