Australia's property market is officially in a downturn, says Domain | The Business | ABC NEWS

Investors have become nervous.They are shying away from the housing market.But it may be having a ripple effect on first home buyers as well because nobody wants to purchase when property prices are falling.This whole concept of purchasing on a Friday and then by the Monday your home is worth less.We're seeing declines in Sydney, Melbourne and Canberra.That's really leading the downturn.

But I think what we are starting to see is it is broadening out.And actually, while other capital cities are still recording growth, that growth is much slower compared to what we had previously seen.The only capital city that bucks that was Adelaide.Adelaide was the only city where house prices actually accelerated in growth.

The report points out changing conditions were clearest in the unit sector.Is that something that surprised you.Did you expect that first home buyers would take up any space left by investors leaving the market?

It was a bit of a surprise because I think the thing that was unanimous across each capital city is unit prices declined in every capital city apart from Darwin.That was a surprise to us and I think it really shows that investors have become nervous.They are shying away from the housing market but it may be having a ripple effect on first home buyers as well because nobody wants to purchase when property prices are falling.This whole concept of purchasing on a Friday and then by the Monday your home is worth less.

First home buyers might also be concerned by losing the equity that they have in their homes, particularly those who are purchasing with the government's 5 % home deposit scheme?

I think there would absolutely be nervousness out there amongst first -home buyers, that cautious approach.But I also think that behavioural response from first -home buyers thinking if they wait a little bit longer and prices pull back even further, they may get actually more for their money.

Given Australia's housing supply problem, combined with high construction costs and still strong population growth.Is there alimit to how far this downturn can go?

I think so.There is what is described as a flaw for pricing, and that flaw for pricing comes from a behavioural response from sellers, where sellers just start to pull back and they don't sell their property until conditions start to improve.And then you've got high construction costs as well, which keeps the cost of new dwellings much higher and helps to filter demand into the established market.Both those two things together help to create a flaw for pricing.

And so has the downturn actually changed Domain's forecasts for the remainder of the year in terms of where prices are likely to go?

What we saw over the quarter was quite a sharp decline, particularly in Sydney and Melbourne, and I think that did take us by surprise a little.I think it really shows how much sentiment has been impacted.We know consumer confidence has been weak, and I think also the budget response.Australians didn't really take the budget very well.Now, we were forecasting an up to 8 % decline in house prices in Melbourne and up to a 7 % decline in Sydney for this financial year.forecast to be reached towards that lower end of that range that we actually forecast.

I think if we see another rate hike or two, this is when we could see forecasts actually dip lower than that.

Okay, and so then if house prices indeed were to fall beyond your expectations, could it signal a further problem with Australia's economy, one that says Australians really are losing confidence about the future?

a correction or a crash in the property market is described of above 20 % fall, I think that's very unlikely because what you have is a pullback in new sellers coming to the market.That dynamic is a behavioural response and becomes quite a strong response as the downturn unravels.People just wait, they pause their decisions,until market conditions improve.That is going to create and always does create a flaw for price.So we're not entering into a market that is in free fall.

I think to see significant reductions in price, we would need to see supply rapidly increase.And that means trying to hit those housing accord targets and also more rate hikes coming through.And our expectation is that we are at a cash rate peak, but I think for that catalyst to turn conditions around and that rate reduction to come through is some time away.Good to speak to you Nicola Powell, thank you.Thank you.