Housing prices under pressure

Experts in the property market are predicting today that the housing boom is over in Australia and the next 12 to 18 months could actually see a significant drop in home prices.

For those with enough equity in their homes and with sufficient income to service their current loans, notwithstanding an interest rate rise, all will be OK, and they will be able to ride out the storm.

From another perspective, those home buyers and investors who got a foothold on the rising property ladder by virtue of interest-only loans could be in for a spot of bother.

You see, the interest-only period on these loans doesn’t last forever.

Over the next three years, interest-only loans worth a combined total of about $360 billion in this country will roll over to interest plus principal — and that means borrowers will face higher repayments.

“The kind of nightmare scenario is where a lot of people need to sell at once, and that’s when you see a kind of fire sale mentality, and could see very significant downward pressure on prices,” said Professor Richard Holden from the University of New South Wales Business School.

“That puts the banks under stress, and their balance sheets under stress, and it could lead to significant financial instability.”

Six months ago Professor Holden said there was a risk the Australian housing market could face a US-style meltdown, and he maintains there is a risk that downward pressure on prices could lead to financial instability.

According to ABS data released on Tuesday, residential property prices fell 0.7 percent in the March quarter.

Sydney recorded an annual price fall of 0.5 percent, the first since the March quarter of 2012.

Prices in Melbourne dropped 0.6 percent, the first quarterly fall since the September quarter of 2012.

A Lake Macquarie real estate agent said today that prices for homes on the east side of the lake have stayed firm over the past 12 months. “An auction last weekend bought above the reserve, giving an indication that the Lake Macquarie/Newcastle property market has not been affected by the slight fall in the Sydney market.”