Four reasons the property boom is ending: Propell

Four reasons the property boom is ending: Propell
Four reasons the property boom is ending: Propell

May’s dip in home values has many wondering whether we’re at the end of a price boom, or whether we’re just seeing a seasonal dip in values.

Property Observer’s Jonathan Chancellor noted earlier this week that home prices have dropped every May for the past three years, and that last month’s fall was the first in twelve months. 

However, Propell National Valuers are among those who think that the 1.9% drop in national home prices recorded by RP Data is cause for concern, with national research manager Linda Phillips writing that "the quantity of red ink is noticeable". This is the second time in a month that Phillips has claimed that “booming” house prices are at an end

Here are four factors triggering a change in the market, according to Propell.

  1. Holidays. According to Propell, the combined Easter and ANZAC Day break gave "everyone pause for thought".
  2. Falling consumer confidence.
  3. “The negatively perceived federal budget”.
  4. The approaching winter.

The unusually warm May in Australia’s south-east has "not been enough to override a change in market sentiment."

Phillips predicts that media coverage of the price drop "will be enough to get would-be buyers backing off from the market". She expects that prices will trend downward in the months to come.

RP Data recorded price falls in most capital cities for May.

“Brisbane was supposed to be the one spot that would record strong growth in 2014 but it is not immune from the weak economy,” writes Phillips. Darwin was the one city that recorded an increase in dwelling prices over the quarter, with a 5.5% rise. However, Propell remains sceptical of the positive result.

“Darwin was the only capital to show an increase and that was due to a jump in unit prices of plus 4.7% which may turn out to get adjusted in coming months.”

Phillips expects that home prices will "stabilize or drift downwards a little as Australians adjust to a tougher life after the federal budget, in whatever form it passes through the senate".

Despite many experts forecasting a rise for interest rates when they do finally move, Phillips believes that economic conditions may push the Reserve Bank of Australia into cutting rates by the year’s end.

"As the economy weakens, and home prices stop driving economic activity, I am sticking my neck out and suggesting that interest rates will have to start falling again by the end of the year. The market is still trading on the assumption of interest rate stability but our rates are starting to look too high for the state of the economy," she writes.

"Without the excuse of rising property prices to sustain interest rates, the Reserve Bank is likely to come under pressure to reduce interest rates further, the only way to reduce the A$ exchange rate to a point where economic activity gets stimulated again."

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