Sorry First Homebuyers, But Falling House Prices Won't Help You Much

Economists are warning of the biggest housing price falls since the GFC, but first homebuyers will be waiting a lot longer before affordability improves by any decent measure.

That's the message from experts, who said the small declines in housing prices are still dwarfed by the enormous price spikes of recent years in capital cities.

The latest data from property analysts CoreLogic points to a 0.7 percent fall in national housing prices in November. Of most concern is a one percent drop in Melbourne and a 1.4 percent dip in Sydney, coming after several months of smaller price decreases.

"We've recently seen small and steady declines but this month nationally, the 0.7 percent fall is the biggest monthly since November 2008, which was late in the global financial crisis," Cameron Kusher, head of CoreLogic research, told 10 daily.

"The 1.4 percent drop in Sydney was the biggest monthly fall since early 2004."

Kusher said worry about falling house prices could seep into other sectors of the economy, as people may not feel as wealthy, which in turn could impact on retail spending coming into the Christmas period.

Sydney housing prices have fallen nearly 10 percent since mid-2017.

This comes after housing prices ballooned nationally, particularly in the major capital cities, in recent years.

Parts of Sydney recorded 100 percent increases in housing prices in the decade to June 2018, according to previous CoreLogic data, and experts warn a monthly fall of just one percent won't do too much to help young first homebuyers into the market.

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"It's really important to understand what are effectively small adjustments in the housing markets of Melbourne and Sydney doesn't fundamentally change the affordability picture for people looking to establish themselves in the market," associate professor Wendy Stone, director of the Australian Housing and Urban Research Institute at Swinburne University, told 10 daily.

"It's erroneous to think this adjustment in any way improves the affordability picture for most people."

Australia has among the most unaffordable housing markets in the world, with international reports consistently ranking Sydney as the second most expensive housing market.

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Home ownership rates among younger people are falling, with the Demographia International Housing Affordability Survey reporting in January that the median Sydney house cost nearly 13 times the median income, while for Melbourne it was 10 times the median income.

Dr Chris Martin, of the University of NSW's City Futures Research Centre, told 10 daily that the price falls may be a tiny silver lining for young aspiring homebuyers.

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"It may be good news for younger owner-occupiers, but there are yet ways of governments stuffing this up," he said.

"This Australian housing bubble has more lives than a cat. I'm intensely interested if it's actually popping now."

Martin said government policy settings such as negative gearing had made investing in property a very attractive and profitable proposition, and led to vast sums of money flooding the market, and people borrowing large amounts to secure their place in the housing boom.

But now that the market is slowing down, after a long period of relentless growth, analysts and investors are worried.

"The devotion to prices go to show we’ve got a problem with housing speculation, that's been the driver of house price growth," Martin said.

"These things are watched so anxiously because so many people have borrowed world-beating amounts of money to throw at housing in the hope someone else will come later and borrow even more and spend even more, to pay off the cost of that bet."

"It has meant that not only investors but also owner-occupiers are buying with an eye on what prices are going to do. They've become speculators too,  and prices have been rampant and increased very rapidly."

"The other side of that is that people are anxious about the prospect of future increases, so if they stop buying, prices can go down rapidly as well."

But despite the potential for housing price falls, Stone warned first homebuyers or young aspiring property owners not to get far ahead of themselves yet.

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"These trends don't change the affordability picture. There are still large numbers of people for whom renting remains unaffordable, they still can't save that deposit at the rate needed," she said.

She said the discussion should be shifted to seeing housing as an important human necessity for shelter, not just a commodity to be bought and sold to make profit.

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"The main discussion about this has been about lost money for investors. But if we think about housing from a home rather than an investment, this doesn't change the picture," Stone said.

"Affordability remains one of our main economic and social problems, it should remain a key priority for governments coming to the next election."