Property values in Australia appear to have escaped the slump seen in the US and the UK. The latest figures from the ABS show that house prices have increased on average 4.2% in the June quarter confirming the increases indicated by private sector surveys such as RP Data.
However Australian house prices remain expensive by global standards and prices are more than 20% above the long term trend. Housing affordability has improved greatly in the last 12 months but this has been the result of lower interest repayments rather than falls in the price of real estate making it likely that affordability will deteriorate somewhat in the coming 12 months.
So what happens next? While no one knows the answer for sure it is unlikely that the Australian real estate will experience the 40% declines that some commentators are predicting. If the housing market has been able to navigate the last 12 months without falling off a cliff it is likely to continue to show resilience going forwards. The most likely scenario was set out by AMP’s chief Economist who described a situation with modest growth in house prices below increases in income so that house prices would continue to fall relative to wages.