For first homebuyers looking to break into the market, the thought of falling property prices is the stuff of dreams. For many other Australians who already own their home, this would put them at risk have decreasing the value of the asset in comparison to their mortgage, meaning they have less security. For Australians who are investing in property, it would mean the value of their investments would shrink. They would have less equity to leverage yet it would also mean there may be more opportunities created in the next market cycle. Whichever group you might fall into, it could be safe to say that falling property prices are neither good nor bad, they simply mean different things to different people.
There is far more to it than that, as Michael Yardney points out in his article on Smart Company. Yardney mentions that while there is much talk about making property more affordable, realistically, there are only two ways we can do this. That is to either give home buyers more money to spend on property, through either increased wages or further grants or decrease the value of property. We know from experience that grants are not a viable long term solution and will ultimately push prices up further as the demand grows. Is the solution then to allow our real estate prices to fall?
While the thought may be nice for first home buyers, the reality is much bleaker. For a property crash to occur and make a significant impact on the wider market, we would need a scenario that would have many knock-on events that will affect far more than just our property prices. Yardney provides the following:
- A very severe recession; leading to …
- Severe unemployment — high enough to trigger forced home sales;
- A severe credit squeeze, or interest rates to rise significantly and cause a raft of mortgage defaults;
- A significant oversupply of property — this is only occurring in a few selected markets, but in general we won’t have a significant oversupply unless we get …
- A halt to rising population that is underpinning our growing property markets;
- A substantial slowdown in foreign investment; and
- A major change in government legislation that affects property.
We can see here that this would be quite disastrous to the average Australian, more so than the wealthy who are often to blame for the runaway prices in the Sydney and Melbourne markets. The solution therefore needs to come in a different form, a change in the way we view property as whole.
Rentvestors have discovered that property is more than just a roof over your head, instead property is a means of building your wealth while also creating security for the future. While continuing to rent the home you live in and investing in suitable markets, you can take advantage of current conditions without the fear of missing out if you are unable to purchase in a desired location. Instead, you may live wherever you choose and this could very well be the key to keep Australia’s housing market afloat for all Australians.