Have property prices in Australia really hit rock bottom?

House prices have started rising again but there are plenty of reasons we may not see property values jump back up.

Property prices in Sydney and Melbourne have begun improving for the first time since 2017 but there are still plenty of reasons why prices aren’t going to skyrocket any time soon.

The first green shoots started appearing in Australia’s housing market last month, with dwelling values up by 0.1 per cent in Sydney and 0.2 per cent in Melbourne in June, according to CoreLogic.

“They are the two markets that have seen the largest falls since 2017, with Sydney values down 15 per cent from its peak, and Melbourne down by about 11 per cent,” CoreLogic head of research Tim Lawless told news.com.au.

“But they are also the two markets with the strongest economic conditions and this probably explains why we are seeing the first signs of recovery.”

Mr Lawless said Melbourne and Sydney, which were also the two most unaffordable markets, were the only places so far to have responded to lower interest rates.

“We have seen an ongoing and consistent trend for smaller declines in those markets,” he said.

“But there are some headwinds and this is why we don’t expect prices to bounce back.”

Mr Lawless said credit policy was still very tight making it harder to get home loans than it was a few years ago.

There were also some other factors that could come into play.

Property prices are staring to increase in Sydney and Melbourne. Picture: Matthew Vasilescu/AAP

More new apartments and dwellings are expected to be completed in Sydney and Melbourne and this could keep prices down.

“Some who bought off-the-plan may start selling that stock and as we start to see resells flow on to the market, this could have a downward effect on values,” Mr Lawless said.

“This will impact precincts that are heavily supplied in places like the CBD and the city fringes along transport spines.”

Worsening economic conditions could also start to bite and Mr Lawless said cracks could already been seen in NSW and Victoria where the residential construction sector was slowing down and there was ongoing weak wages growth.

“I’m expecting unemployment could push a little higher from where it is at the moment,” Mr Lawless said.

Affordability also remains an issue, particularly in Sydney and Melbourne.

Dwelling prices are 8.5 times the median household income in Sydney and about 7.5 times in Melbourne.

“This is quite remarkable and is higher than any other capital cities in Australia,” Mr Lawless said.

While first home buyers are quite active at the moment if prices start rising too much, this will have a dampening effect on demand because properties will again become unaffordable for them.

If prices do start rising quickly, bodies like the Reserve Bank of Australia (RBA) and the Australian Prudential Regulation Authority (APRA) may also put more restrictions on lending to keep prices stable.

“The best outcome from a policy makers perspective would be stability in the housing market despite low interest rates,” Mr Lawless said.

While the RBA made the decision to reduce interest rates recently, Mr Lawless said this was to stimulate the economy through household spending and encourage business growth. Ideally they would want to keep house prices in check and reduce household debt.

“Realistically the best way to tackle housing affordability is for governments to help improve access and spend more on infrastructure that links up areas that offer affordable alternatives,” he said.

The resale of new apartments being built in Sydney and Melbourne may drive prices down. Picture: David Gray/ AAP

Mr Lawless said making it easier to commute to certain areas, where there were good amenities like schools and hospitals, would help, and federal government could also work with state and local governments to open up supply in areas with transport links.

He also noted that other areas around Australia were still not showing signs of price recovery and this could be because unemployment is higher and jobs growth lower.

“It’s one thing to have affordable housing but if the labour market is weak, you don’t have labour coming in to take advantage of low prices,” he said.

“Perth has the lowest house prices of any capital city, even Adelaide and Darwin.

“But jobs growth is about 0.5 per cent and unemployment is still up around the mid-6 per cent mark.”

Mr Lawless said 82 per cent of jobs growth over the past 12 months had been in Melbourne or Sydney. This compares to the long-term national average of 55 per cent.

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