Why house prices are going down

Stephanie Brennan | March 20, 2017

There has been a lot of hype in recent times on the property market and the ‘inflated’ house prices 
with talks of the housing ‘bubble’ bursting, but what does this all mean? 

Let’s take a look at the Australian housing market as a whole you through the September 2016 
report released by Core Logic: 
? Combined capital city home values increased by 1.0% in September with values rising in all 
capital cities except for Perth and Darwin 
? Home values were 2.9% higher over the three months to September 2016 with home values 
in Brisbane, Perth and Darwin falling over the quarter 
? Over the first nine months of 2016, capital city home values have increased by 8.6% and 
Perth and Darwin are the only cities in which values have fallen 
? Over the past 12 months, combined capital city home values have increased by 7.1% which is 
up from a recent low of 6.1% at the end of July 
? Across the individual capital cities, the annual change in home values have been recorded at 
+10.2% in Sydney, +9.0% in Melbourne, +3.0% in Brisbane, +6.5% in Adelaide, -7.0% in 
Perth, +8.7% in Hobart, -6.0% in Darwin and +9.0% in Canberra 
? Capital city house values have increased by 7.3% over the past year compared to a 6.1% 
increase in unit values 

So why are house prices going down? If you look at the above figures these are the average 
across all major cities, meaning that some areas within those cities have experienced higher and 
lower growth with the average having increased in value over the past 12 months. 

So what causes house prices to drop in value? The main factor is supply verse demand. Let’s take 
a closer look at Brisbane for example. House prices at the moment are increasing, however unit 
prices are falling due to an oversupply of property with a lack of population growth to outweigh the 
number of new properties coming onto the market. This not only means the new unit market is 
devalued but the existing unit market. 

So why are house prices in Brisbane increasing if unit prices are falling? The value of land within 
5-10kms of the CBD has been increasing over the last 12 months to due developers looking to 
built units or townhouse on that land and paying a premium for it. This was of course before the 
banks started to reign in their lending with developers due to an increased risk on their ability to 
recoup their funds. The other factor driving housing growth in that for an additional $100,000+ 
more you can buy a 3-4-bedroom house rather than a 1-bedroom unit so purchasers are seeing 
more value for money in houses over units. 

Let’s take a look at why the Perth & Darwin housing market dropped. The short answer is a lack of 
demand due to limited growth factors such as population growth. There were a number of 
investors that bought into the Perth market at the time of the mining boom however when you’re 
looking to invest you need to ensure the area you’re investing in has multiple growth indicators not 
just one as we’ve seen in Perth. If you rely on one growth indicator, as soon as that reason for 
growth becomes removed there is no longer anything driving growth and so your investment 
becomes devalued. This is the same with investors that purchase in rural areas across Australia. The majority of 
people want to live within 10-20kms of a major city. Melbourne but more so Sydney have the 
population growth to sustain consistent capital growth, which is what we are seeing now. 

Let’s touch on another reason why house prices may be going down even if the average house 
price is going up. This occurs when properties are bought substantially over market value, which 
usually result from an owner-occupier buying at an auction. Investors will always have a limit at an 
auction because their focus is gaining a Return on Investment (ROI) meaning the numbers need to 
stack up. Whereas the Owner Occupier are making an emotional investment and are willing to pay 
top dollar for their dream home but that’s not to say the open market will also want to pay top 
dollar which is why we see some house prices dropping in areas or cities where house prices are 
increasing. 

Tip: If you’re a first homebuyer and you’re looking to get into the property market, look at 
properties that are being sold by private treaty and aren’t going to auction. Set your limit 
particularly if you’re buying to invest rather than to live. 
?
Tip: For the investor that has a property in a housing market that’s decreasing, if you have the 
rental income to support the current debt on the unit then look to hold. Alternatively, if your rental 
doesn’t cover the mortgage/expenses or you’re looking for greater growth, you can look to buy and 
sell at the same time by transferring the current debt on your property directly onto the next 
property in a better area. Speak to your bank or broker about porting the security and the best way 
to implement this.