Property prices in some cities have fallen even further than simple numbers suggest, once values are adjusted for inflation.
CoreLogic found that while ‘nominal’ prices (not adjusted for inflation) had fallen in only three capital cities over the year to June 2018, ‘real’ prices (adjusted for inflation) had actually fallen in six capitals.
Between June 2017 and June 2018, dwelling values dropped -0.8%, but when taking into consideration inflation they in fact fell by -2.9%, a much more significant decline.
Sydney and Melbourne’s value declines are only attributed to the past 12 months, whereas Perth has been seeing declines in value for over a decade, with the peak as far back as 2006, amounting to a total loss of -29.2%.
What does this mean for the housing market?
Household incomes are rising whereas property prices are decreasing, which indicates a positive change in housing affordability. It does also indicate that return in value growth isn’t guaranteed. Investor buyers may be looking at riskier purchasing prospects, especially as there is a potential for changes in the amount of tax charged on investment homes.
There are also considerations surrounding more restrictions in access to credit, lenders potentially upping their mortgage rates, and historically low returns on rent. All of these factors indicate dwelling values staying low or sinking lower. CoreLogic says that “it could be many years before we see real dwelling values returning to their previous peak”.