A lot of noise has been made of the house price data which was released this week. Nationally, house prices are down by 0.4 per cent for the month.
So does that mean the boom is over? And what does it mean for homeowners and investors?
First, let’s get the facts straight. The median house price is down in Sydney and Melbourne, but not the rest of the country.
Because 40 per cent of all houses in Australia are in Sydney and Melbourne, those markets have a big impact on the Australian median house price.
The drop in the median house price doesn’t necessarily mean that houses are worth any less this month than they were last month. It is a more a reflection of what is selling in the market at a particular point in time and that half the properties that sold went for above the median and half sold for below.
Below are the changes in median in the main capital cities in Australia:
May (%) | YTD (%) | |
Sydney | -1.1% | -0.6% |
Melbourne | -0.8% | -0.8% |
Brisbane | 0.8% | 9.4% |
Adelaide | 1.9% | 10.0% |
Perth | 0.6% | 3.9% |
Canberra | -0.4% | 3.9% |
Australia | -0.4% | 2.0% |
The median house prices in Sydney and Melbourne are down by about 1 per cent for the year, although still 20 per cent and 10 per cent above pre-pandemic levels respectively. Hardly cause for panic stations.
Brisbane and Adelaide, on the other hand, are up by about 10 per cent already for the year, and not showing signs of slowing down just yet.
No doubt the prospect of rising interest rates is having some impact on Australia’s two largest cities.
However, both cities have experienced a lot of price growth in the past five years. I think it’s more likely that Sydney and Melbourne growth will have a little break before having another run when international borders reopen fully.
That’s what assets do; increase in value, have a break, then go again. That’s why is so important to have good cash flow from your investments, so you can afford to tread water while they go through their periods of pause.
In the meantime, I think Brisbane and Adelaide house prices will continue their run, off the back of population growth (and therefore housing demand) from interstate migration.
Why? A house still costs 40 per cent to 50 per cent less in Brisbane and Adelaide than it does in Sydney, when you don’t get paid 40 per cent to 50 per cent less to work in those cities.
That’s what the property markets do; they cycle at different times, growing for two to four years in their 10-year cycle, and usually with all markets following Sydney. That’s why I think it’s important to diversify.
In a property context, I see diversification as having different properties in different markets within your portfolio. This way you’ll have property going up more than just every two to four in a 10-year cycle.
With all investing, it’s important to take a long-term view, which I wrote about last week.
I think property in all the capital cities of Australia will be worth more in 10 years’ time than it is today.
