Australia’s Property Market Explained in 7 Charts

Will this highly contagious strain of COVID-19 affect property values? 

The Australian property market is currently going through an unprecedented period of change, as Australia emerges from two years of recurring coronavirus lockdowns and into a period of high inflation and low consumer confidence.

Now, after a record-breaking 18 months for the Australian property market, there are a few questions on every property investor’s mind. What happens next? Will the current rate of growth continue? Or, is this the beginning of a property market downturn?

In order to gain a better understanding of the current and future climate surrounding the Australian property market, we’ve chosen seven charts that are particularly informative for Australian property investors to understand the market moving forward.

The total value of Australia’s residential real estate exceeds Australian Super, ASX-listed Stocks, and Commercial Real Estate combined.

During the twelve months of 2021, Australia’s residential property market climbed in value more than any other year since the ABS began its residential property prices index report in 2003.

The total value of Australia’s residential real estate climbed by $2 trillion in 2021, reflecting a 23.7% increase over the 12 month period and driving the total value of Australia’s residential property market to $9.9 trillion.

The mean price of residential dwellings increased by $44,000, reaching an average of $920,100 nationwide. This has meant that it takes the average Australian nine years to save enough for a 20% deposit on a home compared with the four years of savings required for a deposit in 1990.

As a result of this parabolic price growth, Australia’s property market is now worth more than the value of Australian super funds, ASX Listed stocks and the total value of commercial real estate combined.

The growth in housing values is slowing across each of the capital cities

After an enormous 18 months for property value growth, Australia’s property market growth is finally beginning to slow down.

Data from Corelogic’s home value index showed that home values rose just 2.4 per cent in the first quarter of 2022, which is less than half of the 5.8 per cent increase in the same quarter last year.

The bulk of this slowdown has been felt in the Sydney property market, which recorded its first price decline in 17 months in February. CoreLogic data also revealed that Sydney housing values fell 0.2 per cent over March, suggesting that prices are headed into a downturn for the most expensive city in Australia.

Melbourne property values also fell by 0.1 per cent over the month of March, taking the overall quarterly growth to just 0.1 per cent – contrasted with the 5.8 per cent growth seen in the first quarter of 2021.

“The sharpest slowdown has been in Sydney, where housing prices are the most unaffordable, advertised supply is trending higher and sales activity is down over the year,” CoreLogic’s Tim Lawless said, speaking on the cooling property market.

“With higher inventory levels and less competition, buyers are gradually moving back into the driver’s seat. That means more time to deliberate on their purchase decisions and negotiate on price,” Mr Lawless concluded.

Sales volume has been persistently higher than usual

According to CoreLogic estimates, 598,000 houses and units were sold in the 12 months leading up to August 2021, which is the highest number of annual sales since 2004.

This has meant that the number of dwellings sold over the past year was 31% above the national decade average.

The increase in sales volume has been led by Western Australia and Northern Territory, who saw sales increase by 62% and 59% respectively, followed by Queensland who saw sales rise by 54% over the prior year.

In part, these sales volume increases can be attributed to a rise in first home buyer activity, as a result of the HomeBuilder scheme, used in conjunction with the First Home Loan Deposit Scheme.

However, we are now seeing sales activity beginning to slow down in 2022, largely as a result of unaffordable housing and predictions of declining property values throughout the year.

“Nationally, the volume of housing sales is coming off record highs but there is some diversity across the capital cities in these figures as well,” Mr Lawless said.

“Our estimate of sales activity through the March quarter is 39 per cent lower than a year ago in Sydney and 27 per cent lower in Melbourne, while stronger markets like Brisbane and Adelaide have recorded a rise in sales over the same period.”

As of 2022, we are seeing that the median time on market for the average property in Australia is beginning to rise again, as we shift from a sellers market to a buyers market.

Australia’s real wage growth and forward projections of future growth. Source: The Guardian

Real wage growth has been particularly stagnant throughout the pandemic

While wages rose by 2.3% in 2021, this was well below the 3.5% increase in inflation, meaning that real wage growth went backward during the pandemic.

Part of this backward wage growth was due to the cap placed on public-sector wages during the pandemic, coupled with a rising cost of living on goods such as foods and petrol. This has meant that Australians were $800 worse off in 2021, reflecting the steepest cut in real wages in over 20 years.

“The problem here is that the costs-out have been going up and income-in through people’s wages has been going down in real terms, and the last budget said that there will be real wage decreases over the forward estimates,” said Shadow Treasurer Jim Chalmers.

Purchasing a property is generally considered to be an effective method of fighting inflation, and this has certainly been the case throughout the pandemic as property value growth vastly exceeded any wage growth seen during 20-21.

However, while stagnant wages served as a tailwind for the property market throughout the pandemic, they may equally provide a headwind moving forward as it becomes more financially difficult for Australians to purchase property without meaningful wage growth.

Australia’s household debt-to-income ratio is nearing all-time-highs

Since March 2019, $264 billion worth of mortgages with a debt-to-income (DTI) ratio of six or above (which is considered to be a “risky” level of debt) have been created. Moreover, the number of new mortgages as of the December 2021 quarter that had a debt-to-income ratio of six times or more reached 24.4 per cent, up from 17.3 per cent in the year prior.

This data suggests that the number of new “risky” mortgages is not only increasing, but also, roughly one quarter of all new mortgages created are risky. This level of risky debt, relative to income, exposes a large share of Australians to mortgage stress and defaults should interest rates rise.

And, according to the RBA Governor Philip Lowe, an interest rate rise is “plausibly” going to happen sometime this year.

It’s estimated that in Sydney and Melbourne alone, a 1 percent interest rate rise could send 135,000 and 88,000 households respectively into a state of mortgage stress.

“I think that a lot of the loans that have been written over the last six to 12 months are very fragile. And a lot of those, I think, could turn quite bad quite quickly,” said analyst Martin North, of the increasing DTI ratio seen in Australia.

What does all of this mean for property investors?

With stagnant wage growth, an impending cash rate rise, and increasingly risky levels of household debt, the Australian property market is certainly beginning to show some cracks.

However, when you couple these facts with the shift from a seller’s market to a buyer’s market, some interesting opportunities arise for keen investors.

…An opportunity to create a win-win situation for both you and the many homeowners that are currently or soon will be struggling under financial stress.

This situation may yield you properties at anywhere from 10-40% below market value.

How is this possible, you ask?

We’ll teach you how at our FREE Real Estate Rescue Webinar.