SQM warns housing prices may drop over 5% as stock levels rise 3.9% in April

Property prices may drop more than 5% during 2011-12, one property expert has warned, after new figures released by SQM Research show the number of listings added to the market grew by 3.9% during the past month, and by over 68% during the past year.

SQM managing director Louis Christopher says the data provides evidence there could be a price correction of more than 5% if the trend continues – especially in Melbourne where stock has doubled over the past year.

“I think we’re going to see downward pressures on Melbourne prices. Asking prices in Melbourne have stood their ground for a while, but that’s about to change. Given the amount of stock on the market, they’ll have no choice but to reduce their asking prices.”

“We will hold to our general view regarding a correction size. In the capital cities, we think there is the possibility of seeing corrections of between 5-10%”.

The data also shows certain metropolitan areas are at risk of an oversupply, including in Melbourne where the data shows Melbourne property listings have grown by a massive 104.5% during the past 12 months, while listings in Sydney have grown by 54%.

The numbers reveals total property listings grew by 3.9% during the month of April to 370,638, with national stock levels rising 68.7% over the year – an increase of 151,000.

Melbourne stock levels recorded the highest month-on-month growth at 5.2%, to a total of 43,551. Perth and Adelaide both followed with 4.6% increases as well. Sydney recorded a 4.1% increase, Brisbane a 3.9%, Canberra a 4.3% and Hobart a 2.2% increase.

Darwin only recorded a 0.6% increase over the month of April.

Over the year, the biggest movers were Canberra, up by 82%, and Perth, which is up by 74%.

Christopher says there is no way this trend can continue and have prices remain at the same levels.

“There isn’t going to be a massive fall of something like 40%, but there is going to be correction. The amount of stock means buyers have no other choice than to make amends to their asking prices.”

He points out that even a correction of between 5-10% could prompt the Reserve Bank to take action, or force the Government to once again intervene in the market as it did during the financial crisis with the first home buyers’ grant.

“We think that’s going to happen, although that’s separate from the opinion that we would want it to happen.”

“Having a correction of greater than 10% as an average would be fairly damaging to the property sector. Right now the RBA may be enjoying these declines because it allows them to deleverage the housing market, but that will change.”

But Christopher warns if listings continue to rise, the RBA will begin to worry and could even cut rates.

“The Government won major accolades for the first home owner’s boost, but it’s not so good for the first home buyers because many may be in negative equity right now.”

“There is potential these drops could happen towards the end of the year – this is definitely a real possibility we are facing.”