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Hewison Insights

Property under siege

Simon Curtain
Partner/Private Client Adviser
6 Jun 2011

A month ago I wrote a blog about the property market, commenting on the decline in Melbourne house prices over the past three months but pointing out that things weren’t all that bad for the market in general.


What a difference one month makes!

While there is now no doubt the market is in decline, the question turns to whether or not the bubble is set to burst. Generally speaking, a decline of 10 per cent is considered a correction, while a drop of 20 per cent is considered a crash. While I do not think a crash is on the cards, I do think that the market is set for a major correction of around 15 per cent this year.

Put in simple terms, a 15 per cent correction would result in a property previously valued at $650,000 reducing to around $550,000. For the prospective buyer, purchasing the same house at this lower price could save them $150 per week on their mortgage payments – a significant saving.

A clear sign that prospective buyers are holding back are auction clearance rates, which are down. For five weeks in a row the clearance rate has been below 60 per cent.

So when will the market bottom out? Well, that is a difficult question to answer. Market sentiment can be a powerful thing and if the market believes that property is overvalued then it can almost be a self fulfilling prophecy, driving prices lower and lower, until the tide turns and the market begins to see value in property prices again.

In addition, a rise in interest rates later this year won’t help as it will only cool the property market further but this could provide a great buying opportunity for the savvy investor.

Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.