You may have heard rumors that the housing market is about to take off. The price drop is finally over and the time to live is now.
You can get excited, grab a deposit and finally dive. But is it still too soon? be careful.
In Sydney and Melbourne, the decline in housing prices may also reappear. House price declines are easing earlier this year. However, the latest data showed that the price decline deepened again in late April / early May.
The following chart uses the daily house value index created by CoreLogic. As you can see, the rate at which house prices fall is variable. At one point, Sydney's value drops very quickly, so if you keep it for one year, your value will fall by 25%. In other cases, it was falling at a rate corresponding to a few percent each year.
Related: Declining home prices are bad news for paid packets.
Relevant: House prices have fallen worst year after GFC
The fall rate from the first day of the new year to the end of April seems to have decreased. The waterfall is slower and softer. You can see the line rising steadily to zero. When the dark blue line crossed zero, Melbourne's value seemed to rise again for a while.
But by the end of April something changed. The waterfall in Sydney seems to have accelerated. And Melbourne also dived.
For Adelaide, Brisbane and Perth, the patterns are somewhat different. The value of Perth declined moderately by the end of February. Adelaide House values are generally stable and over the last few weeks Brisbane has actually slowed down slightly.
It is important to understand the CoreLogic daily data behind the graph above. This index uses information about sales prices to estimate the value of all homes, including those that are not for sale. In other words, this index is an estimate of the value of all homes, not just those on the market. Data on sales prices are updated daily as well as changes in existing homes. Newly built apartments or old homes have been destroyed.
Where is the residence?
The data tells us what happened just yet, but we can not tell what we really want to know, the future. Will the price decline continue or will the market recover? There are a lot of moving pieces. One support for home prices is that the RBA is likely to cut interest rates. It should make the mortgage cheaper and make people spend more homes.
But look deeper. The reason the RBA cuts interest rates is because the economy is showing signs of weakness. On Thursday, the latest unemployment rate data was released, showing an increase in unemployment, an increase in incomplete employment, and a mix of full-time and part-time jobs.
As household debt is high, wages fall and unemployment rises, you can see how much you will spend on your property.
Another big factor influencing housing prices is policy. Labor promised two policy changes that could affect the real estate market: negative equipment and capital gains tax.
Their goal is to make housing more reasonable. When the Labor Party wins the election, new policies will begin on January 1, 2020. This can lead to a strong market before some people get out of the real estate and gravitate again before the changes take effect early next year.
The impact of these policy changes is not large in their entirety, but they can affect certain types of assets. Labor will end negative gearing only for existing real estate. This will reduce investor demand for the property and increase investor demand for new housing. If competition for these types of real estate is reduced, the price of that category may fall and more existing homes may fall into the hands of owner occupiers.
Watching the housing market is a fascinating time. Anything can happen. You need to pay attention when you buy and sell – as shown in the graph above, market trends can change very quickly.
Jason Murphy is an economist. He writes Thomas the Think Engine blog.
Continue conversation @ jasemurphy