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Falling house prices won’t improve affordability as much as you might think

22 7 3

HOUSING prices are falling in Sydney and Melbourne, so housing must be becoming more affordable – right?

The annual growth of house prices has been slowing consistently for more than a year in Australia’s largest cities. Prices finally started falling in the latter part of last year. The decline began much earlier in Perth and Darwin. Prices in most other cities, with the exception of Hobart, have been more stable.

Melbourne and Sydney have had sharp falls in house prices, but the declines started much earlier in Perth and Darwin. Source: ABS, Author provided

House owners have a secret weapon

A rise in house prices is a mixed blessing. For those whose employment and savings strategies have helped them become home owners, price inflation is a good thing – the value of the house rises while the mortgage debt stays the same, or falls. For others, the savings and income targets for owning a home become ever more elusive.

So this should mean falling house prices are bad for home owners and good for aspiring home owners, right? In practice, things don’t work out quite like this, for several reasons.

Provided they are financially “liquid” (they have a job and can cope financially), home owners have a secret weapon: they don’t have to sell.

Research shows housing markets tend to........

© Asian Correspondent