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How to tell when house prices will hit bottom

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“The rate of decline is much worse than we saw in the last recession. Affordable prices are expanding, household debt is higher, and this dual factor of inflation and rising interest rates is a bigger blow. I will give you, “said Tim Lawless, CoreLogic’s Asia Pacific Research Director.

This means that interest rates are the number one factor in deciding when home prices will start to rise again, and when the RBA will start a cycle of lowering interest rates again.

“When interest rates start to level off, it’s probably around mid-next year, but if not earlier, it’s probably a clue to the housing market starting to stabilize,” Laures said.

Two signs that the peak of the interest rate cycle may be approaching are that inflation is starting to return towards the target range of 2-3% and that it is tight. The labor market begins to loosen.

Does the descent (and ascent) follow a particular pattern?

Yes, the Australian real estate cycle has certain characteristics that tend to be common.

First, when it comes to the capital, we tend to see Sydney and Melbourne leading the cycle, followed by smaller cities such as Brisbane and Adelaide. There are exceptions.

“For example, Perth is completely separated and much driven by commodity cycles and major infrastructure projects. The same is true of Darwin. And, for example, more agricultural and more divorced from broader trends. We have a regional market, “adds Laures.

Nicola Powell, Head of Domain Research and Economy, said Sydney and Melbourne tend to record larger price fluctuations compared to other capitals because homeowners are sensitive to changes in economic conditions. Is called.

“Generally speaking, income is high, households have more debt, and investment activity is proportionally higher … Therefore, both rises tend to increase prices. Yes, but it’s more vulnerable in the case of a descent, “says Dr Powell.

What happens if you drill down to the city level?

Similarly, high-priced suburbs and regions within a city often show signs of a decline or rise first before spreading elsewhere.

The eastern suburbs of Sydney peaked in house prices in June 2021, and the eastern suburbs have already recorded home price declines for the third consecutive quarter.

At the bottom of the market, home prices are still rising in areas such as Blacktown, the Central Coast and southwest Sydney.

Therefore, if you are trying to choose the bottom of the cycle, pay attention to the high-priced area, says Dr. Powell.

“When we enter the recovery phase, we are likely to pick it up at the top first, and the eastern suburbs are one of those areas,” she adds.

How long does the real estate downturn usually last?

A recent analysis by domain that observed the duration of the Sydney market cycle found that the decline tended to last less than half the time (monthly) of the previous rise.

“Generally speaking, the descent is shorter and less serious than what was seen in the ascent,” says Dr. Powell.

For example, the real estate boom from 2000 to 2004 lasted 42 months to reach its peak, but during the subsequent recession it took only 18 months for prices to fall from the peak to the next valley.

Throughout all down phases, Laures points out that the 12-month annual rise in home prices leading up to the peak of the market is equal to or greater than the overall peak-to-trough decline.

“In the two years prior to the peaks in each market, capital gains were always greater than the subsequent peak-to-trough decline,” he adds.

Is it possible to choose the bottom of the market?

Laures says people should time their decision to buy real estate in their own circumstances and budget.

“In reality, it’s impossible to try to choose between the top and bottom of the market,” he says.

Nonetheless, there are some key indicators that are a combination of macroeconomic and housing market factors, and the market may be on the verge of a turnaround.

How consumer sentiment is tracked (as recorded in the weekly ANZ-Roy Morgan survey and the monthly Westpac-Melbourne Institute survey) has a timely, “nearly perfect” correlation with the housing market. Offers.

If consumer sentiment (the willingness to buy major household items, or the outlook for households over the next 12 months) improves, we know that the real estate market is also starting to look.

“The correlation isn’t perfect, but it’s almost perfect,” says Laures.

“As consumers feel pessimistic about their balance sheets, interest rates and employment prospects, they really emphasize that there is a negative trend in the impact on housing demand.”

Property indicators include the number of properties, average time spent on properties, and vendor discount rates.

Dr. Powell adds that the number of people participating in the auction, the number of bidders, and the clearance rate of the auction (the percentage of properties sold at the auction on a particular weekend) provide an excellent barometer of the market.

“60% is considered a benchmark for clearance rates. Therefore, below 60% usually indicates that the market has been modified. At around 60%, prices have fallen and obviously vice versa. Become.”

Sydney auction clearance rate It fell to 49.9% last week and fell below 50% for the first time. From mid-April 2020.

Is it better to sell or buy first in a recession?

There is no one-size-fits-all answer to this, but Dr. Powell says the top end of the market tends to lead the recession, creating a “timing sweet spot” for certain buyer segments (upgrades). increase.

If you buy into a market where prices are falling first, ideally you sell your home (small, low value) while prices are still solid, and buy to high-end markets when prices continue to fall.

Of course, the scenario doesn’t take into account how difficult it is to find a new home. You may be in a hurry after you sell.

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