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Is the property downturn really that bad?

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Media coverage of the property market has been overwhelmingly negative over the past year, but are things really that dire for sellers? 

While price declines as a result of interest rate hikes have been significant, it pays to zoom out and get the full picture. Homeowners who've held their property since before the pandemic are still well and truly ahead. 

So how does the current downturn compare to the monumental growth seen in recent years?

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Home values are well beyond 2020 levels

According to PropTrack data, Australia's median property price is down -4.86 per cent from its peak in 2022, making for one of the more significant downturns the country has had. 

But it's crucial to remember that this comes off the back of a historic boom that saw national home prices increase by +23 per cent in 2021 alone. 

PropTrack's recent analysis put things into perspective by demonstrating just how significant that upswing was compared to the declines of the past year.

The recent dip hasn't been enough to wipe out the massive gains of the 2021 boom. Source: PropTrack

According to their data, 2021 was the third-fastest year of national price growth in 140 years of records. 

PropTrack economist Angus Moore explained that the "strong growth during 2021 means that prices nationally are up almost 30 per cent compared to three years ago, even with the recent downturn."

That's extended to more than +43 per cent in Brisbane and Adelaide, while Sydney and Melbourne are still sitting a very healthy +22 and +14 per cent higher respectively. 

"While anyone that bought near the peak in 2022 has probably seen their home value fall relative to when they bought, most homeowners aren't in that boat," Mr Moore said. 

He also pointed out that downturns are part of the regular property cycle and aren't uncommon — there have been six of these negative-growth periods since 1990.

Ultimately, the vast majority of Australian homeowners will have seen very substantial growth over the past three years despite recent declines.

How much worse is the current downturn, though?

There's no doubt that the market correction has been historically significant, with monthly declines peaking in August 2022 at -1.6 per cent. 

The swift nature of the downturn has been driven by the sudden and rapid increase to interest rates. Few economists foresaw the severity of the current tightening cycle. 

Mr Moore explained that the correction has been comparable to those that occurred in 2008-09 and 2018-19 but "a little shorter and shallower."

The rate of decline has eased since that August peak, though, and February saw corrections grind to a halt in most markets. 

A key factor that's limited the damage has been an ongoing shortage of listings on the market. With little for buyers to choose from, prices have effectively been cushioned. 

Listings have been well below average since the unusually quiet spring selling season last year. Source: CoreLogic

As long as this listings shortage continues, it's likely that prices will continue to be held up to a degree. 

It doesn't mean that the downturn is over, though. The full impacts of interest rate hikes are still to be felt and things could change if sellers rush back to the market.

What's in store for the year ahead? 

There is still a level of uncertainty around the property market in 2023 as the interest rate peak remains in question

On the one hand, many economists are forecasting the downturn to continue throughout most of the year. 

Westpac and NAB are predicting national declines of -8 and -11 per cent respectively, which would drive home values down closer to their pre-pandemic levels. 

There are those who expect we may already be approaching the market bottom, though, particularly in Sydney where price growth returned in February

A fresh wave of buyer demand competing over scarce listings has resulted in a halt in the downturn and renewed predictions that an interest rate pause is imminent could inject some confidence back into the market. 

CoreLogic's head of research Tim Lawless told the AFR "once we see a widespread belief that rates have peaked, that is when we are likely to see consumer sentiment improve alongside more housing activity, both from a buying and selling perspective."

He pointed out that a genuine market recovery is likely only to come once interest rates are cut or lending standards are loosened, which may take some time. 

For now, a distinct shortage of listings appears to be working in favour of sellers. If sellers were to return to the market en masse, though, it could drive further price declines throughout 2023. 

Still on the fence about selling?

If you’re feeling uncertain about when and how to approach the market, we get it. It’s a huge decision that deserves careful consideration. 

Even if the market feels uncertain, it’s important to remember that it’s all relative and the market doesn’t stop. There will always be properties being listed and buyers out there wanting to purchase a home. 

It's also crucial to recognise that conditions will vary from suburb to suburb, so it’s important to understand your own local market — and to do that, you really need to get granular. Our free guide to tracking market trends and data can be a big help there. 

If you’re seriously considering selling your home, you need to do your research. As a first step, get a market estimate of what your home might be worth using an online estimation tool. 

Speaking to a top local agent is also one of the best ways to get a thorough understanding of how buyers are behaving in your suburb, what kinds of results are still being achieved, and what the best strategy could be for you to still get that dream sale result. 

At the very least, it’s helpful to hear what properties are selling for, what demand is currently like for homes like yours, and to get a no-obligation appraisal of what your home might sell for in the current market. A top agent who knows your market like the back of their hand will be able to help you along the journey.

1. PropTrack, PropTrack Home Price Index - February 2023, 1 March 2023

2. PropTrack newsletter, 'Your weekly PropTrack digest: Economist Update', 10 February 2023

3. Westpac IQ, 'Westpac Housing Pulse February 2023', 28 February 2023

4. NAB Business Research and Insights, 'NAB Quarterly Australian Residential Property Survey Q4 2022', 2 February 2023

5. Australian Financial Review, 'Prospect of rate pause could lift housing market sentiment', 7 March 2023