Why odds are not pointing to a housing crash

By Gerv Tacadena

Many industry watchers believe that Australia's housing market is on its way to a crash as dwelling prices continue to fall.

Many industry watchers believe that Australia's housing market is on its way to a crash as dwelling prices continue to fall. However, there seem to be several factors that would likely cushion the impacts of the downturn.

In a think piece on Yahoo! Finance, Market Economics managing director Stephen Koukoulas said for a crash to happen, prices in the eight capital cities would have to fall from peak levels by 35% or more by December 2021.

However, data from the Australian Bureau of Statistics (ABS) seem to suggest that prices will not fall by anything near 35%. In fact, the eight capital cities in Australia have only registered an overall decline of 5.1% in the December quarter from the peak level recorded during the same period in 2017.

"In other words, the decline in house prices has to accelerate from now and be sustained for the peak to trough decline to exceed 35%. While there is a slight risk such large falls will occur, it remains very unlikely that the housing market will experience such a crash," he said.

Koukoulas said one reason why a crash is unlikely is the low interest-rate environment, which, he thinks, will "put a floor under demand."

Furthermore, first-home buyers are starting to participate actively in the market as affordability improves and incomes moderately increase.

"With a large pool of potential first home buyers eagerly waiting on the sidelines, with deposits at the ready and finance approved, an important source of support to housing is likely to materialise over the near term and the next few years," he said.

Another critical factor is the downtrend in building approvals that will curtail the new supply of dwellings. Koukoulas said the oversupply currently being experienced in some areas would soon end as Australia's population continues to grow.

"Those people will need to buy or rent a dwelling meaning a floor under prices is likely to materialise as new construction of plummets," he said.

However, Koukoulas believes prices will continue to be weak for another six to 12 months until these factors start to influence the market.

"This means that peak to trough prices is likely to be around 15% to 20% at most," he said.

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