Are House Prices On The East Coast Beginning To Fall?

It looks like house prices across the East Coast are beginning to go backwards for the first time in 18 months this May. This is most likely a result of banks increasing interest rates for investor only loans in an attempt to curtail growth. This isn’t to say however that widespread price falls are just around the corner, with market analysts from CoreLogic noting that it’s still to early to call the peak of the market. And while most alarmists will have you believe the East Coast is in for a major price correction, history and reality dictate that this won’t be the case.

Are increased house prices necessarily bad?

In fact, a slowdown in price growth could actually be a good thing. With house prices across capital cities still 8.3 per cent higher than a year ago, affordability remains a key concern. While this is good for homeowners and investors already established in the Australian property market, a dip in prices would be welcome for those looking to buy in Sydney or Melbourne.

Auction rates are also still up across these two cities (70%-75%) meaning that demand is still relatively high. This may perhaps be stymied however by three factors set to influence property house prices more than anything else – rising household debt, an increase of properties on the market and climbing interest rates.

At present, Australia’s levels of household debt is by far the most concerning issue impelling demand and subsequent house prices. Martin North, the principal of financial research firm Digital Finance Analytics, has calculated that in March, of the 3.1 million mortgaged households analysed, around 22 per cent were in “mild mortgage stress”. That’s up 1.5 per cent on February.

CoreLogic also added:

“While the ratios of household and housing debt to disposable incomes is at record-high levels, so too are the ratios of household and housing assets to disposable incomes. The ratio of housing assets to disposable incomes sits at 910.6 per cent having increased by 23.2 basis points over the [December 2016] quarter and 42.2 basis points over the year.”

Australia’s level of household debt now sits at around 189 per cent of incomes and more than 123 per cent of GDP. This puts us up there as carrying nearly more household debt than any other country worldwide, and exposes households to future increases in interest rates, taxes, inflation or fuel. The APRA and the Australian Securities and Investment Commission have already started cracking down on regulators, with the more confident lenders perhaps responsible for inordinate lending over the last 24 months.

The combination of mortgage stress and debt might potentially force the hand of property owners, and lead to an increase in homes and apartments on the market. Increased supply means that favour falls into the laps of buyers and with so many loans approved over the couple of years, there’s no shortage of cashed up purchasers. Once this supply begins to outstrip demand however, the cycle will reverse, and many properties may end up sitting on the market for months unsold, while asking prices are reluctantly slashed.

People owing more than what their properties are worth was the driving fore behind the financial crisis in the US, Ireland and Spain. There could also be a case made that this is happening in Western Australia, albeit on a much smaller scale.

Are we soon seeing a ripple effect in house prices?

Recent out-of-cycle interest rate hikes courtesy of NAB, CBA, ANZ Bank and Westpac have also coincided with new figures showing that only 11.6% of Australians see property as a viable investment – the lowest since The Melbourne Institute of Applied Economic and Social Research started the survey in 1974. While these rises may be a necessary evil, there’s no doubt they will impact buyer confidence.

Australian is still touted as having one of the most expensive real estate markets in the world, but it’s only logical that house prices must cool soon. If interest rates continue on an upward trajectory for the balance of 2017, we will most definitely see a ripple effect that will lead to a massive price shift in Sydney and Melbourne towards the end of the year.


  1. Michael Janda, 25 January 2017, “Real estate: Housing outlook moderate to grim, according to experts and property industry”
  2. Christine Zhou, 30 March 2017, “What could cause property prices to drop in Sydney and Melbourne as moderate growth predicted: Deloitte”
  3. John McGrath, 30 May 2017, “Don’t panic! The property bubble isn’t about to burst”
  4. Marty Silk, 10 April 2017, “Australian property prices forecast to fall then stagnate: Moody’s”


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