Why House Prices Are Crashing

Presidio Group
Sep 5, 2018 · 4 min read

I received a call from a client last week in relation to a property purchase he had been planning to make via his self-managed superannuation fund. He had been planning the purchase for 12 months or more, so my immediate thought was, ‘he’s found his ideal property’. It’s been a project in the works for some time and up until last week, he has been really excited to see his property portfolio expand as well as inject some diversity around the assets in his super fund.

But there was a problem. I asked with genuine concern as to what issues had arisen that would thwart his plans. He said ‘we no longer want to purchase a property due to the housing crash’. I was taken aback; was there some significant world event that I’d missed throughout the day due to my intensive meetings schedule? I hoped it wasn’t war or something serious caused by the ever-volatile geopolitical climate.

‘What has happened?’, I asked in a concerned voice. ‘Nothing serious’, was the answer that fired back; ‘just concerned about the declining house prices’.

Whilst I was relieved to learn the world wasn’t on the brink of civil war, nuclear war, or financial collapse; I was a little confused. After all, my property hadn’t gone down in value, and neither had any of his; in fact, quite the opposite.

Just to be clear, house prices Australia-wide have given up 2.2% since December last year but I think it’s a misleading number. For one, Sydney has produced an average double-digit return over the last 3 years; so for property prices to ‘decrease’ this year-to-date by 4.5% is, in my opinion, a correction on an overheated market; not a crash, or indeed anything to be fundamentally concerned about.

My point: there are a few weak housing markets — Sydney and Melbourne are the primary newcomers to this party and they’re joining Perth and Darwin who have been in the doldrums for a while now. The main contributor to the overall generalised downward trajectory of the Aussie average is, however, Sydney.

But what about Hobart? Up over 10%. What about Brisbane, Adelaide, and Canberra, who are all putting in modest but positive returns? What about Orange? What about Cairns? Australia is a big place and the fact that your local free-to-air TV station is happy to broadcast the negative headline in an over-generalised manner, really detracts from the facts on property investing. Buying any old property will not expose you to a 2% drop in value and nor will buying ‘just any old property’ expose you to a guaranteed positive return. Amateur investors are often fooled by the over-generalised rhetoric that property is either a sure-fire thing or it’s a doom-and-gloom scenario in the making. In fact, property investing is a much more nuanced beast requiring research, and know-how; to help you get a good outcome.

Just because property is going down on your nightly news, doesn’t mean every property is losing value. Case in point: whilst the cartoon-journalist nightly news show was busily condemning all Aussie property to a 2.2% decline, my personal property experience is a near 10% increase.

Do your research and don’t succumb to the doomsayers.

Ph 07 3391 7055

E jason@presidiofc.com.au

Jason Cook, Director

Presidio Finance Consulting, Level 1, 32 Logan Rd, Woolloongabba Qld 4102 PO Box 1186, Coorparoo DC Q 4151

W www.presidiogroup.com.au

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Presidio Finance Consulting Pty Ltd ABN 51 128 973 508 hold individual memberships with the Mortgage & Finance Association of Australia (MFAA); and holds an Australian Credit Licence, number 391109. The information contained in this email is general, and does not take your individual financial situation into consideration. Your full financial situation would need to be reviewed prior to acceptance of any offer or product. Rates are supplied by various lenders and mortgage managers. Connective and Presidio Finance Consulting Pty Ltd takes no further responsibility for their accuracy. All rates are indicative annual rates only, and are subject to change without notice. Rates for residential loans only. Nothing in this sheet states or implies that any credit is available. Other fees and charges may apply. Unless specifically indicated, this email does not constitute formal advice or commitment by the sender of Presidio Finance Consulting Pty Ltd.

As always, we would be very happy to assist any of your family, friends or colleagues — please send them to us for a no-obligation consultation.

Source: http://www.corelogic.com.au

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