Housing Prices Fall in March Quarter

Capital growth in Sydney PropertyRecent statistics show that demand for property is falling with Sydney median dwelling prices falling by 1.1% (RP Data) and the growth in housing credit slowed to 0.4%. This means that the banks have not increased their lending to finance residential property. I wonder whether the lowering of demand is due to tighter bank lending criteria post GFC or buyers are unwilling to invest in property at this stage.

Whilst the Australian economy is strong at the moment with near full employment, strong growth, stable inflation and stable interest rates, the global economy has some major problems and the threat of a second GFC cannot be discounted.

The USA seems unwilling to address their massive public debt by raising taxes whilst unemployment is high, the housing sector in tatters and growth unsteady. The USA still has effectively zero interest rates and have been flooding money into the banking sector to pump the economy. It will be interesting to see whether the US banks have been using those funds to lend to US businesses as intended or invest in the markets for a quick dollar. The money from the Federal Reserve will naturally flow to where money can be made quickly (ie the markets) rather than their traditional long term business of lending money.

The Euro zone has its own series of problems with high debt, very high unemployment and populations unwilling to accept the changes necessary to revive their economies in the long term.

The decline in housing prices is questioning a central tenant of many in the community that you cannot go wrong with property as it will always go up. The flat market is causing investors and potential developers to question whether now is the right time to invest in property.

Economists are now predicting that property investors will now start coming into the market, taking advantage of strong demand for rental properties and limited supply. This has been evidenced by increasing rental returns.

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