Investing In Shares

Both Property Prices & Sales Are Now Contracting

The ABS released the latest residential property figures yesterday.

At first glance the headline figures suggest that things are ticking along nicely with a further 1.5% increase in the weighted average property price index pushing the index to another all time high.

However, if you drill down into the data there are ominous signs that not all is well in the Australian property market.

Firstly, the median prices for units AND HOUSES in EVERY Australian capital cities are now below their all time highs:

median house prices australia

This means that contrary to what the headline figure suggests, for the majority of homeowners in Australia the price of their house actually fell quite markedly over the last quarter.

It is likely that most of the property price gains (that lifted the headline figure) were being experienced in the high-end property market.

More concerning still was the dramatic fall in transactions, which are now at their lowest levels on record and may be an ominous sign of future price falls to come:

number-of-established-house-transfers-in-australia-q3-2016

The property market looks to have stalled.

It’s now at risk of rolling over as the momentum from the recent price rally fades and fewer buyers enter the market to support prices.

My concern is that this may not be the end of a “cyclical rally” in Australian house prices, but rather the end of a long and lucrative “secular rally” in prices which upon turning will usher in a new phase of secular decline in Australian housing.

Before investing in any shares going forward I’d be considerate of the exposure that a company has to the residential property sector and the impact that a decline in property prices and transactions would have on its operations.