Speculation that Australia's drawn out residential property boom may have finally fizzled was substantiated by an Australian Bureau of Statistics (ABS) report that notes the biggest fall in house prices in 18 years.
Although the ABS observed a 10.9 % average price increase over the year- the slowest annual growth since June 2001- house prices in the nation's capital cities tanked by average of 1.2% in the June quarter. According to the bureau, the fall in prices was the first fluctuation into the red for four years and the biggest since official property statistician began in 1986.
The news will not come as shock to residential and investment buyers, who have been sitting on speculation for two years that the residential property sector had levelled out and was overvalued. Over the past six years, Australia has followed the skyrocketing property bubble experienced in the UK, Spain and other western nations, observing a 100% increase in average house prices. Government concern at the overheating market is widely accepted as the motivating factor behind two interest rate hikes in 2003, which has driven the average mortgage rate to 7.05%.
Property ownership and possessing the coveted investment property in Australia has become a national obsession, with 85% of all household debt related to property purchases and has become a key driver on the nation's monetary policy.
According to the statistics published by the ABS, Sydney and Canberra have experienced the biggest downturn in the June quarter, with established house prices declining by 5.4% and 3.3%, respectively. On the flipside, Hobart, the capital of Tasmania has witnessed a 4.2% surge in prices over the same period, while all other major cities increased their average house values between 1.0 and 2.5%.
The worrying news for property owners and investors follows the first quarter announcement that homes have been taking twice as long to sell as in 2003 and that median house prices in the nation's two largest cities are heading south.
Sydney, the nation's largest and most expensive residential property market dropped by 7.5% in the first quarter, with average house costs tumbling from A$497,500 to A$460,000 ($350,000 to $324,000). While in Melbourne, median prices took a 12.9% hit, decreasing from an average of A$310,000 to A$270,000 ($218,000 to $190,000).
The ABS also notes that approvals to build new houses fell by 2.8% in July, while apartment construction remained in the black.
Estimates by private institutions have house prices tumbling from anywhere up to 6.5% for the year thus far and the Reserve Bank of Australia have also chipped in with their two cents in on the downturn, suggesting the fall in auction clearance rates reflected that property owners were not getting the prices they expected.
