Well not quite yet. But we are likely through the worst of it. After a fairly steep slide that has resulted in falls of about 25% in the inner and middle Eastern Suburbs of Melbourne, the slipping prices have slowed. When it will stop and how much lower it might go, will be affected by the outcome of voting this coming weekend.
Either way, we haven’t quite reached the bottom. But the way it gets there will probably follow very different paths depending on who wins Government. Should the unexpected occur and a Coalition win take place, we are likely to see a prolonged flatter swing through the bottom of the cycle. This could well last another couple of years.
In the event that Labour takes the reins, it is more probable that there will be a few months of increased demand and relatively stable prices (known in share trading as a “dead cat bounce”). This is because any investors that own property before the law changes will be protected from the changes. This will likely be followed by a steady, steeper decline starting from January, 2020. This is assuming they are able to pass their proposed legislation to eliminate negative gearing and to halve the capital gains benefits after 12 months of ownership.
Make no mistake, such profound changes to the benefits of ownership will influence buying behaviour. This is not to say whether it is a good thing or a bad thing, since dropping prices help some people and hurt others. The proposed increased benefits to first home buyers promised by the Coalition and quickly adopted by Labour will help support prices but mostly with cheaper properties. And these have held up better than expensive ones in this cycle anyway.
The call by HSBC that the property cycle will turn back up in the second half of this year is an optimistic prediction and will almost certainly be out by about 12 months if Labour takes power. Even a Coalition win is unlikely to result in the second half of the year being the point at which prices turn back up. Unless you are a first home buyer, in which case whoever wins, you are probably going to experience more competition for your first home, albeit with a greater ability to secure it (at a higher price).