The biggest Australian property market isn’t having its best days. Is there an opportunity in this?

For the longest time, Sydney has been Australia’s hottest property market. Investors could build their wealth with confidence, as property prices only kept rising. The average house price in Sydney has exceeded $1 million since March 2015.

Wealth for Life Sydney market
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But it seems that years of overinvesting are turning the tables. After peaking in 2017, Sydney home prices started to go down slowly. By 2018, it became clear that we were looking at a downturn that was there to stay.

And that’s exactly what happened. Prices have gone down further, and experts predict they’ll go below $1 million in the second half of 2019.

Truth be told, this isn’t that big of a surprise. Over the years, there’s been an affordability crisis in the Australian housing market. People just can’t afford to pay sky-high prices or rents for homes. It was just a matter of time before the market softens.

According to predictions, Sydney’s average home price will go below the $1 million mark. Let’s take a look at what the experts have to say about this and is there anything that you can do to benefit.

Dropping Below $1 Million

In June 2017, Sydney house prices averaged $1.2 million. Now, two years later, we’re on the verge of the biggest drop in the past four years. According to the Domain house price report, we’re looking at an average of $1,027,962.

Wealth for Life oversupply
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The reason?

There’s a huge oversupply of homes that are just too expensive. However, there’s more to this drop than meets the eye.

The biggest issue is that people simply can’t afford Sydney homes anymore. There are a few reasons for this.

First of all, it’s very hard for people to get a loan. Banks are very selective about who they lend to. As a result, more and more people can’t get the money they need. Exposed to too much housing stress, it’s only natural for them to feel discouraged. 

Nicola Powell, Domain’s senior research analyst, explains:

‘Ultimately obtaining a home loan is more challenging and what that has translated into is there are fewer buyers in the market because buyers are having to meet more stringent lending conditions.’

She states that many people can’t get the funds that they need, which cripples their borrowing capacity.

We all know what happens when demand declines – prices go down with it. Investors who own Sydney properties are going to feel the consequences of this. This is why many of them have decided it was time to get out.

Powell believes that prices will keep going down as the year goes on. She states that cutting the cash rate would help, but not by much.

‘There is wariness amongst buyers. I think there is renewed interest but buyers out there they’re smart, they’re knowledgeable in the fact that the market has been softening for some time and I think they don’t want to overpay,’ she says.

Investors have stayed away from Sydney so far. But with the recent changes, we might be looking at a brighter future. The APRA and the RBA are making it easier for investors to start out. What’s more, the Coalition’s electoral victory will likely benefit many first home buyers. It seems that the market is getting exactly what it needs to rally investors.

Let’s take a look at what investors should do in the current state of the market.

What Does This Mean for Investors?

As mentioned, some of the key changes that need to happen in order for the Sydney market to recover are in the work. 

Both new and experienced investors should be optimistic about the future. While it might not happen right away, most experts agree that the Australian property market as a whole is set for better days.

What Should Sydney Property Owners Do?

Some investors are too concerned about the downturn. Unable to look at the big picture, they decided to steer away from Sydney. While there hasn’t been any panic selling, many of them looked to Brisbane and other recovering markets.

Wealth for Life be selective
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If you’re thinking about this, think again. In the long run, staying in Sydney should pay off. 

Nerida Conisbee, chief economist of realestate.com.au, states that the Coalition’s policy plays a big role here. If Labor had won, prices would have gone down further. This is because of their stance on abolishing the tax benefits of negative gearing. 

Luckily, this didn’t happen, and Conisbee believes that things are looking up. 

‘I can’t see anything that is looking more negative as we head into the second half of the year. There’s nothing really negative on the horizon now,’ she says.

She mentioned an interest rate cut as the main factor that would really get things moving, as it would stimulate the market.

Prices are still dropping. However, they’re likely to pick up sooner than expected. JP Morgan’s Ben Jarman predicted that this wouldn’t happen until the second half of 2020. But Cameron Kusher, CoreLogic’s head of research, disagrees. In his words:

‘But now, if these changes do go ahead … we might actually find the market bottoms earlier – maybe towards the end of this year – and potentially next year we’ll get some slight growth.’ 

So in essence, current investors shouldn’t despair. Instead, the best thing would be to hold until the market resumes its uptrend.

What about Aspiring Investors?

If you’re thinking about investing in property, you’ll benefit more by taking action now than in the future. You’ll be buying into a record 4-year low and nearing the end of the downturn. Not only are Sydney homes much more affordable, but there are more opportunities to invest than we’ve seen in a long time.

Wealth for Life Sydney improvement
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CoreLogic’s Kevin Brogan mentioned tight lending standards as the biggest entry barrier. ‘If you’re looking to buy a house, you still need to be able to show you can service the mortgage and still have the ability to pass that 7 per cent-plus stress test to show you can still service the mortgage at that rate of interest,’ he says.

Well, the 7.25% stress test is likely coming to an end. APRA announced a possible change that should make it much easier for investors to snatch up properties. 

This would finally loosen the tight lending standards we’ve been seeing since 2014 with the introduction of the 7.25% floor. This has been one of the biggest pain points for new investors. Any decrease would be welcome and spur on the competition that spells good news for property prices.

What’s more, the Coalition promised to help first home buyers start out. Instead of a 20% deposit, those who qualify for the first home owner loan deposit scheme only have to save 5%. The government will guarantee the other 15%, making it much easier to buy.

A Long-Awaited Recovery

As you can see, the most important pieces of the market recovery puzzle are connecting. It seems that the government and the banks are set to create a much more favourable investment climate. But before that happens, Sydney’s house prices might drop even further.

This is why it’s important to stay focused on the long run. Those who persist are likely to come up roses.

And if you’re just starting out, now might be the best moment in a long time. If you need further guidance on how to begin, feel free to reach out to us.

The biggest Australian property market isn’t having its best days. Is there an opportunity in this?

For the longest time, Sydney has been Australia’s hottest property market. Investors could build their wealth with confidence, as property prices only kept rising. The average house price in Sydney has exceeded $1 million since March 2015.

Wealth for Life Sydney market
  • Facebook
  • Twitter
  • Google+
  • Pinterest
  • Gmail
  • LinkedIn

But it seems that years of overinvesting are turning the tables. After peaking in 2017, Sydney home prices started to go down slowly. By 2018, it became clear that we were looking at a downturn that was there to stay.

And that’s exactly what happened. Prices have gone down further, and experts predict they’ll go below $1 million in the second half of 2019.

Truth be told, this isn’t that big of a surprise. Over the years, there’s been an affordability crisis in the Australian housing market. People just can’t afford to pay sky-high prices or rents for homes. It was just a matter of time before the market softens.

According to predictions, Sydney’s average home price will go below the $1 million mark. Let’s take a look at what the experts have to say about this and is there anything that you can do to benefit.

Dropping Below $1 Million

In June 2017, Sydney house prices averaged $1.2 million. Now, two years later, we’re on the verge of the biggest drop in the past four years. According to the Domain house price report, we’re looking at an average of $1,027,962.

Wealth for Life oversupply
  • Facebook
  • Twitter
  • Google+
  • Pinterest
  • Gmail
  • LinkedIn

The reason?

There’s a huge oversupply of homes that are just too expensive. However, there’s more to this drop than meets the eye.

The biggest issue is that people simply can’t afford Sydney homes anymore. There are a few reasons for this.

First of all, it’s very hard for people to get a loan. Banks are very selective about who they lend to. As a result, more and more people can’t get the money they need. Exposed to too much housing stress, it’s only natural for them to feel discouraged. 

Nicola Powell, Domain’s senior research analyst, explains:

‘Ultimately obtaining a home loan is more challenging and what that has translated into is there are fewer buyers in the market because buyers are having to meet more stringent lending conditions.’

She states that many people can’t get the funds that they need, which cripples their borrowing capacity.

We all know what happens when demand declines – prices go down with it. Investors who own Sydney properties are going to feel the consequences of this. This is why many of them have decided it was time to get out.

Powell believes that prices will keep going down as the year goes on. She states that cutting the cash rate would help, but not by much.

‘There is wariness amongst buyers. I think there is renewed interest but buyers out there they’re smart, they’re knowledgeable in the fact that the market has been softening for some time and I think they don’t want to overpay,’ she says.

Investors have stayed away from Sydney so far. But with the recent changes, we might be looking at a brighter future. The APRA and the RBA are making it easier for investors to start out. What’s more, the Coalition’s electoral victory will likely benefit many first home buyers. It seems that the market is getting exactly what it needs to rally investors.

Let’s take a look at what investors should do in the current state of the market.

What Does This Mean for Investors?

As mentioned, some of the key changes that need to happen in order for the Sydney market to recover are in the work. 

Both new and experienced investors should be optimistic about the future. While it might not happen right away, most experts agree that the Australian property market as a whole is set for better days.

What Should Sydney Property Owners Do?

Some investors are too concerned about the downturn. Unable to look at the big picture, they decided to steer away from Sydney. While there hasn’t been any panic selling, many of them looked to Brisbane and other recovering markets.

Wealth for Life be selective
  • Facebook
  • Twitter
  • Google+
  • Pinterest
  • Gmail
  • LinkedIn

If you’re thinking about this, think again. In the long run, staying in Sydney should pay off. 

Nerida Conisbee, chief economist of realestate.com.au, states that the Coalition’s policy plays a big role here. If Labor had won, prices would have gone down further. This is because of their stance on abolishing the tax benefits of negative gearing. 

Luckily, this didn’t happen, and Conisbee believes that things are looking up. 

‘I can’t see anything that is looking more negative as we head into the second half of the year. There’s nothing really negative on the horizon now,’ she says.

She mentioned an interest rate cut as the main factor that would really get things moving, as it would stimulate the market.

Prices are still dropping. However, they’re likely to pick up sooner than expected. JP Morgan’s Ben Jarman predicted that this wouldn’t happen until the second half of 2020. But Cameron Kusher, CoreLogic’s head of research, disagrees. In his words:

‘But now, if these changes do go ahead … we might actually find the market bottoms earlier – maybe towards the end of this year – and potentially next year we’ll get some slight growth.’ 

So in essence, current investors shouldn’t despair. Instead, the best thing would be to hold until the market resumes its uptrend.

What about Aspiring Investors?

If you’re thinking about investing in property, you’ll benefit more by taking action now than in the future. You’ll be buying into a record 4-year low and nearing the end of the downturn. Not only are Sydney homes much more affordable, but there are more opportunities to invest than we’ve seen in a long time.

Wealth for Life Sydney improvement
  • Facebook
  • Twitter
  • Google+
  • Pinterest
  • Gmail
  • LinkedIn

CoreLogic’s Kevin Brogan mentioned tight lending standards as the biggest entry barrier. ‘If you’re looking to buy a house, you still need to be able to show you can service the mortgage and still have the ability to pass that 7 per cent-plus stress test to show you can still service the mortgage at that rate of interest,’ he says.

Well, the 7.25% stress test is likely coming to an end. APRA announced a possible change that should make it much easier for investors to snatch up properties. 

This would finally loosen the tight lending standards we’ve been seeing since 2014 with the introduction of the 7.25% floor. This has been one of the biggest pain points for new investors. Any decrease would be welcome and spur on the competition that spells good news for property prices.

What’s more, the Coalition promised to help first home buyers start out. Instead of a 20% deposit, those who qualify for the first home owner loan deposit scheme only have to save 5%. The government will guarantee the other 15%, making it much easier to buy.

A Long-Awaited Recovery

As you can see, the most important pieces of the market recovery puzzle are connecting. It seems that the government and the banks are set to create a much more favourable investment climate. But before that happens, Sydney’s house prices might drop even further.

This is why it’s important to stay focused on the long run. Those who persist are likely to come up roses.

And if you’re just starting out, now might be the best moment in a long time. If you need further guidance on how to begin, feel free to reach out to us.

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