Decline in house prices a double-edged sword

News that Tasmania’s overheated housing market is finally cooling will be a welcome development for many. Latest data from CoreLogic’s Home Value Index released on Tuesday shows that Hobart dwelling values declined by 1.9 per cent in the month of December (the steepest fall among all Australian capital cities) and by 4.9 per cent for the quarter.

In regional Tasmania, house prices also fell but to a lesser extent.

There was a 1.1 per cent decline during the December quarter but, overall, home values grew by 2.4 per cent across the year.

Some regional areas experienced significant growth year-on-year with a 9.6 per cent rise in the Central Highlands, 8.5 per cent jump in the North-East and 6.8 per cent increase in the Burnie-Ulverstone area. This growth probably reflects the fact that more people have been forced to look beyond expensive cities to buy a home.

The median price for a Hobart dwelling is now $673,333 compared to the national median of $708,613. Gone are the days when Hobart had relatively cheap housing measured against big mainland cities.

In some ways the December decline was an inevitable market “adjustment” given the rapid rise in house prices across the past five years.

It will give some hope for firsthome buyers looking to get a toehold in the housing market. But it is still a tough undertaking.

The proportion of income it takes to buy a home now compared to a generation or two ago is eight to 10 times higher in most capital cities. The rise in house prices has been far greater than any wage increases.

Falling house prices have been the result of higher interest rates, which for buyers means cheaper houses are a double-edged sword. The cost of the home may be marginally cheaper but the cost of borrowing money has gone up – and continues to rise.

For tenants the cost of rent is unlikely to fall soon because higher interest rates more than cancel out any falling house prices for owners of investment properties.