3 Factors That Cause Property Prices to Drop
There’s a lot of talk in the media about prices dropping and the Australian Property market being in a bubble. Well, rather than worry about media hype and headlines, let’s have a look at the 3 factors that cause property prices to drop:
- Rising interest rates – causing affordability issues. This was a major factor behind the subprime crisis. Thankfully, Australian lending standards are far stricter. Even if you go for a loan from a bank at an interest rate of 4.5% for instance, the lender will often judge your ability to borrow as if interest rates rose to 7% or higher.Interest rates are at record lows and although they will rise eventually, all expectations are for them to drop even further.Also our loans are what are known as Full Recourse Loans. Australian mortgages are generally full-recourse, which means home owners can’t just walk away and hand back the keys – lenders will chase them and borrowers must pay costs (unlike in the US, which is a factor many of the US doomsday experts conveniently forget!)
- Loss of employment (Both owner or tenants)
- Consider the mining boom. There was a period of time when prices were skyrocketing and landlords were enjoying astronomic rents. However, when the market changed and the mining industry ran out of puff, it all collapsed in a big heap. So keep an eye on the industries that are creating jobs for the tenants in your area.
- It will be interesting to see what effect Brexit has on jobs with exposure to Britain such as the Finance Industry.
- Higher supply than demand (either because of overbuilding like what is expected in the apartment market across the entire Eastern Seaboard right now OR people leaving, ie: a lessening of demand as what happened in mining towns!)
So there you have it. The 3 factors that cause property prices to drop. Leave me a comment below and let me know if I’ve missed anything.
February 25, 2021
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