In the Australian property market only one thing is certain: prices go up and then they come down.
Right now they’re coming down – across the nation prices have fallen almost 10 per cent from their September 2017 high.
And according to AMP Capital’s chief economist, Shane Oliver, we may never see such a volatile spike in house prices again.
“Price to income ratio is historically high – even though they’ve come off their recent high, they’re still historically high,” he told The New Daily.
“Prices are coming to the bottom and I don’t think we’ll see another huge surge in prices, again.
“We’re starting at a much higher price to income ratio, much higher levels of household debt, tighter lending standards and unemployment is raising.”
Volatility is the amount of price change experienced over a given period. Low volatility means an asset’s value does not fluctuate dramatically, and conversely assets with frequent price fluctuations have high volatility.
When property prices are more volatile, buyers should think long-term about their choice, as there is a reasonable possibility of price falls in the short term.
According to Reserve Bank of Australia (RBA), house prices have continued to increase across the last few decades.
“Over the past 30 years, Australian housing prices have increased on average by 7.25 per cent per year, and over the inflation-targeting period by around 7 per cent per year,” the RBA said.
While Mr Oliver admitted he incorrectly predicted prices would become less volatile in 2011, he said the circumstances are very different now.
“If you compare it to after 2011, people were able to get in the market because house prices fell quite a bit and lending standards were a bit laxer,” he said.
“There’s a cut to interest rates coming and the banks still have tight lending standards so I don’t think you’ll see prices take off like that again.”
What goes up must go down
But Dr Laurence Troy, UNSW research fellow at City Futures Research Centre, said we shouldn’t expect the market to settle down any time soon.
“I don’t think the variables that have made it volatile have disappeared, I think historically we’ve always had volatile housing markets,” he told The New Daily.
“If we don’t address those then there are no reasons to think it’ll change.”
Dr Troy said the fact Australians still love to invest in property, foreign investment will come back and Labor’s election loss means that changes to negative gearing are off the table will result in the market still experiencing big swings.
“We still have people investing in property as a kind of core aspect of the housing market,” he said.
“The Labor Party lost the election on a platform of negative gearing, which would have started to pick at that speculation and, the foreign investment component has dropped off, but it comes and goes.“
“I just can’t see that there have been any changes that alter the possibility of it happening again.”