According to Domain, the median house price in Sydney has dropped $120,000 to $1,062,619. Meanwhile, CoreLogic predicts a 6% plunge in Melbourne, mostly in the inner city and inner east markets.

APRA restrictions aimed at slowing the market

But does this mean doom and gloom? Not at all. This current downturn was, in many ways, deliberately engineered. The restrictions brought in by APRA were designed to curb the number of property investors flooding the local markets. One major measure in March 2017 forced lenders to limit new interest-only lending to 30% of home loans they issued. The impact of this can’t be understated. It led to a massive drop off in investor-led property purchases.

In fact, ABS figures show that there was a major decline in lending to investors across seven of the eight states in Australia in 2018. Tasmania was the only state to have any increase at all in property investment (around 2%).

Market analysts have almost universally agreed that the tighter bank lending standards have been a huge factor in the current downturn in property prices.

The bigger picture

You don’t have to go back very far to find an even more dramatic slump in the property market. The GFC of 2008 produced a much longer, more protracted period where housing prices were down by 10% from their peak in 2003. It was a difficult time that affected all cities and all areas, not like the current conditions where only certain strata have felt the effects.

In fact, if you look at Sydney’s property market trajectory over a 20-year period, a few things immediately leap out. This is not the first time there’s been a sudden downturn. In fact, there are four periods when Sydney property prices have fallen in the last 20 years, ranging from 3.7% to 8.9% for units and 3.5% to 6.5% for houses. So, despite minor fluctuations, there’s been a clear upward trajectory over a long period of time.

Investment caps removed

In December, APRA removed its property cap and APRA’s chairman, Wayne Byres, said that restricting interest-only home loans to 30% of new mortgages and the 10% annual growth cap on lending to property investors had “served their purpose…”
Lifting these caps will see a return of property investors into the market and a likely strengthening of house prices. Certainly, the high levels of interest in Sydney and Melbourne have not abated. Over 100 000 people migrated into Sydney and 125 000 into Melbourne over the last year.

Population levels continue to soar, which means an increased demand for property. CoreLogic has found that property prices are already where they were in 2017.

Remember that house prices in Australia increased 44.8% over the past decade and a staggering 209.9% over the past 20 years. So, the combination of APRA’s caps on investment buying and many people struggling with affordability have led to a plateau in the market. But as history tells us, the rapacious demand for property in Melbourne and Sydney will continue. CoreLogic data suggests that housing prices are heading back to normal, which means now is a potentially good time to buy into the housing market.