Source : THE AGE NEWS
Brace for impact. Tuesday will deliver the figures on the monthly change in home prices. For the two-thirds of Australians who are already owners, it will be unwelcome news.
And as much as various federal government ministers turn themselves inside out to avoid admitting it, this was the house price correction that Labor engineered.
In its May budget, Treasury forecast that the government’s tax changes to help young people get into the housing market would lower property price growth by a modest 2 per cent against a background of roughly 6 per cent annual increases since 2000.
But tax tools can be too blunt to allow governments to guide the glide to a gentle price landing.
In the major markets of Sydney and Melbourne, the June price fall will be meaningful – and likely to mirror the drops of 0.9 per cent and 0.8 per cent reported in May. There is nothing gentle about this trajectory.
Already this month we have seen weekly auction clearance rates consistently below 50 per cent in many capital city markets, particularly Sydney, providing a clear portent for further price falls.
Smaller capital cities that have been performing more strongly of late and propping up national figures for months are starting to see valuations stabilise.
Not only have buyers been unwilling to meet price expectations at auction, a wave of sellers have been withdrawing their properties as they face the new and lower price reality.
(For example, in Sydney of the 812 auctions scheduled, 178 were withdrawn in the week to 27 June, according to property website Domain.)
For would-be first home buyers the changes could present an opportunity to get a foot on the bottom rung of the property market ladder, which is just what the government was hoping to achieve.
But if the government’s changes represent the straw that broke the property market, this would cause other problems. The move could leave the majority of Australians who own a home feeling poorer.
Back when the government estimated the changes would shave 2 per cent off house price growth, many private economists still thought property prices would rise this year. Now even the major banks are predicting that house prices will fall in the 2026 calendar year.
It is no longer a question of whether prices will fall but by how much. A deep correction can lead to a ripple effect. In a rising housing market, the “wealth effect” experienced by owners can stimulate spending in other areas of the economy – particularly discretionary spending.
The opposite can occur if consumer sentiment is hit by falling house prices and people rein in their spending, in turn deducting from economic growth. Fewer people spending means less money flowing to cafes and shops, which means fewer hours for staff, and on it goes.
Treasurer Jim Chalmers told the ABC’s Insiders program on Sunday that we shouldn’t get too carried away by the behaviour of property prices over a few weeks or even a few months.
But a few months of falls could make a downward trajectory hard to shake.
The government’s decision to use policy to let more air out of the property market after higher interest rates had already made it wobbly, risks pushing the market too hard.
And with inflation heading in the wrong direction, the property market isn’t likely to get any help from a sharp, quick fall in interest rates.
Let’s hope the current price drop allows a new wave of property owners into the market and redresses some intergenerational inequity.
Meanwhile, the 66 per cent of Australians just need to wear the fact that this was the property price correction we had to have.
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