According to the ABS data, and in terms of the bet with Locantro, here is the latest scorecard:
Date of peak Total fall to date - December quarter 2018
Sydney June quarter 2017 9.1%
Melbourne December quarter 2017 6.4%
8 Capital Cities December quarter 2017 5.1%
To date, the run rate suggests prices will not fall by anything near 35 per cent. In other words, the decline in house prices has to accelerate from now and be sustained for the peak to trough decline to exceed 35 per cent. While there is a slight risk such large falls will occur, it remains very unlikely that the housing market will experience such a crash.
There are several basic reasons for this. Interest rates are low and are likely to be cut further which will put a floor under demand. At the same time, the improvement in affordability from the lower house prices, plus moderate incomes growth has seen first home buyers take steps into the housing market.
With a large pool of potential first home buyers eagerly waiting on the side lines, with deposits at the ready and finance approved, an important source of support to housing is likely to materialise over the near term and the next few years.
The other important issue suggesting a bottoming on the housing cycle in the next year is the current slide in building approvals, which will severely curtail new supply. Any over supply that currently exists will not last for long with Australia’s population still growing by around 300,000 to 350,000 people a year.
Those people will need to buy or rent a dwelling meaning a floor under prices is likely to materialise as new construction of plummets.All up, it looks like house prices will remain weak for another 6 to 12 months until these stabilising influences start to impact.
This means that peak to trough prices is likely to be around 15 to 20 per cent at most which means a large margin in my favour as the bet draws closer to settlement.