Property Values to Fall By 40% !!

There are a number of gloom and doom merchants out there, some from the other side of the world, peddling the line that Australian house prices are overvalued by 40% to 60%.

It is true that property prices in WA were over valued following the boom of 2006, when the median price increased by 42% in one year.

Since 2007 prices have been naturally deflating, assisted by higher interest rates, low affordability particularly among first home buyers, and of course the Global Financial Crisis.

Add to that Federal Government interference in the form of economic stimulus to the housing market at the end of 2008 and the subsequent drought of first home buyers in 2010/11 means that the median price of a house in Perth has fallen by 10%, from $505,000 in 2006 to $450,000 to the end of 2011. (according to RP Data Rismark index).

Since Christmas buyer activity has increased and the number of weekly sales is now over 800 compared to 600 at this time last year.

The GFC was largely a North Atlantic phenomenon and Australia was to a degree insulated from it due to our very solid banking system, Chinese demand for our minerals and a strong economic balance sheet bequeathed by the former coalition government.

So what can we look forward to in 2012 and beyond? …

The WA economy has the lowest unemployment rate in the country at 4.2% and the hundreds of billions of dollars worth of resource projects soon to start flowing into the local economy.

In addition you would have heard that rents are going through the roof. The vacancy rate in Perth is a very low 1.6%. At that rate investors will be attracted back into the market and first home buyers will find it more financially viable to buy rather than rent, provided that the deposit barrier is overcome.

I don’t see prices rising for the remainder of this year as there are still currently over 14,000 properties on the market in Perth. However, once that number drops to 11,000 to 12,000 there will be pressure on values as the supply/demand equations kicks in.

In summary if you are waiting for prices to fall by 40% before you buy, you are taking a big risk. It ain’t gonna happen.

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