Australia About To Experience World’s Biggest House Price Decline 

Tuesday, February 12th, 2019

When you compare the previous record highs of the local property market, it’s clear that Australian house prices are declining but what you may not have realised is that, according to experts in the real estate and credit agency industry, that decline may equate to the world’s biggest fall in real estate prices.

According to the results from a story of 24 global economies, the Australian property market shows signs of facing the most dramatic decline in the world. The experts analysing the results predict that falling house prices in our local market will most likely not show any signs of stabilising until at least late 2020.

The lending landscape is also likely to experience further changes as the flow-on from the banking Royal Commission findings lead to tighter lending practices.

A research report released by Fitch Ratings in mid-January revealed a forecast that house prices in Australia would drop a further 5 percent in 2019 – a figure that is on top of an already significant decline (6.7 percent) from the peak. The figures and projections portray Australia’s housing market as the worst performer of the 24 countries investigated – for the second year in a row.

The same study from Fitch – one of the world’s major credit rating agencies – warned about a growing number of mortgage delinquencies happening as a direct result of the drop in house prices, and the longer time-frames required to successfully sell a home.

The results from the Fitch Ratings research showed Australia’s household debt-to-GDP ratio as 121 percent – a figure that represents a massive risk to our local economy in the immediate future. GDP growth that is above-trend, combined with a decrease in unemployment and the benefits of strong net migration would lead to prices stabilising again by late 2020, the study forecast.

Buying and selling real estate is usually always a long game, so anyone scared by the predictions for falling house prices and what it means for their debt should perhaps not panic and instead simply hold on to properties they may have wanted to sell, in order to ride out the storm in the most positive way.

House prices will rise again and it is about patience and long-term planning, rather than a dramatic decision to cash in your assets and cut your losses. For potential buyers looking to get into a property market they may not have otherwise been able to afford, there has not been a better opportunity in a long time – but do be aware of tighter lending.

It’s a great prompt to have your financials in order, ready to be approved for a mortgage that can help you get your foot in the door and have the potential to make some real profits, provided you hold on to your property portfolio for a long time.

In recognition of the weaker housing market, the Australian Prudential Regulation Authority (APRA) recently ditched its 30 percent restriction on interest-only loans.

The findings from Fitch also indicate that the banking Royal Commission’s final recommendations, which are due to be released in February, may lead to further reductions in credit availability.

The Rise of Household Debt

Internationally, Fitch Ratings say that even more countries will face challenges connected to house pricing growth in 2019. The reasons? High household debt levels, increased political risk, economic growth that has slowed and affordability that has been stretched to what many families experience as breaking point.

With the reality of this household debt amplifying risks, and debt-to-GDP ratios soaring to more than 100 percent in countries including Australia, Canada, Denmark, the Netherlands and Norway, and in excess of 85 percent in New Zealand, South Korea, Sweden and the UK, it is clear 2019 is a year for many families to have to tighten their belts to get over the hurdle.

To find out more about the best way to manage your mortgage in 2019 – or whether now is the right time for you to enter the property market – contact our team of lending experts at Loans Actually today.

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