There's a bunch of gloomy talk about a property market crash - and rising interest rates and house value decreases isn't helping the situation either.

So, should you believe this doom and gloom - or not?

Read on to find out more.

What is a property market crash?

As always, we like to start with the basics.

A property market crash occurs when property values drop extraordinarily low - we're talking 20% and more - very quickly.

PropertyUpdate's Michael Yardney says this fall is usually due to a large number of property owners being forced to sell to people uninterested in buying, which in turn means the home will sell well below its worth.

And this forced sale is usually because homeowners can't keep up with their mortgage payments.

Mr Yardney said this situation often occurs when unemployment levels and interest rates are high.

NB: neither of these issues is transpiring right now - more about this later though.

The argument for a crash

We're not going to lie: property values are now declining almost in tow with the Reserve Bank of Australia's (RBA) decision to raise interest rates in May for the first time in a decade - with the change also seeing the first spike in the 18-month long 0.1% rate.

This week, the RBA's monthly cash rate announcement saw the official national rate increase further to 1.85%.

So, it was little surprise when CoreLogic also announced this week in its regular Hedonic Home Value Index (HVI) that national housing values had fallen in July for the third consecutive month - and this included regional property values which have enjoyed incredible popularity during COVID.

"Five of the eight capital cities recorded a month-on-month decline in July, led by Sydney and Melbourne where values fell -2.2% and -1.5% respectively," the monthly report noted.

"Brisbane also edged into negative growth territory for the first time since August 2020, with values down -0.8%, while Canberra (-1.1%) and Hobart (-1.5%) were also down over the month.

"Regional markets have also weakened, with the combined regionals index recording the first monthly decline (-0.8%) since August 2020."

Why is everyone panicking?

Google "property market crash" and it's little wonder both homeowners and potential buyers are nervous and concerned - especially with even industry experts at CoreLogic stating the following in their HVI this week:

"The national rate of decline is comparable with the onset of the global financial crisis (GFC) in 2008, and the sharp downswing of the early 1980s.

"In Sydney, where the downturn has been particularly accelerated, we are seeing thethe sharpest value falls in almost 40 years."

Then there are article lines such as "The ratcheting up of interest rates is expected to have a serious impact on Aussie property prices" or perhaps you'd prefer a headline like this: "The Aussie housing crash is accelerating".

For sure, the combination of higher interest rates and declining property values isn't good news and we're certainly experiencing a choppy market, particularly when combined with a high cost of living, an energy crisis, a pandemic that just won't go away, and more.

But we do want you to consider and study the other side of the story.

The argument for a non-crash

Firstly, to give our CoreLogic friends their due, research director, Tim Lawless, said in his RBA cash rate article this week that interest rate hikes could well be "relatively short and sharp".

And while Mr Lawless believes such hikes will most likely continue for 2022, 2023 could also see rate stabilisation or potential reduction and therefore retrace the hikes of this year.

However, while this month's HVI wasn't pleasant, it's very important to explore the report further.

Yes, Melbourne and Sydney house values haven't increased in the past year but in this same period, Adelaide and Brisbane house values skyrocketed 24.1% and 22.1% with our remaining capital cities enjoying 5.3%-12.1% jumps.

Meanwhile, all regional areas in every state - including NSW and Victoria - can boast boosts of 8.4%-22.5%.

So, Australia is still largely in the black when it comes to property values especially considering the extraordinary 24% acceleration we've enjoyed since 2020.

And while we are moving towards a buyer's market, it's only a very slow easement rather than a crash and we're still nowhere near the record-high interest rate figure of 17% in 1989.

Further reasons not to panic

Think long term

The main reason not to panic is this: house-buying is a major financial investment that will see you and your home walk hand-in-hand for decades, if not many years.

In this way, property value and interest rate changes are details you should expect in your house journey, rather than run from in a panic.

This point is what many people are forgetting right now.

Read between the panic buttons

For these people, we recommend reading up on what the property market has experienced in the last 10 years, or even 40 decades, to keep things relative.

For example, even before COVID hit the scene, property prices were "prohibitively high in our major capital cities" while "supply constraints (were) not helping, particularly in Melbourne", according to a 2017 article from the University of Melbourne.

As well, people were paying more than they should for their homes - and this at a time when Australia hadn't experienced a recession for 25 years.

Another 2017 article also highlighted how much property values increased around this time, with the Organisation for Economic Co-operation and Development (OECD) warning that our house prices “had reached unprecedented highs”, while a “significant downward correction” (otherwise known as a crash) would likely cut consumer spending and push up mortgage defaults.

The article reported that we saw the same kind of property issues occur in 1987.

Read up on those in the long-term know

Another way to keep property panic at bay is to read up on words from extra long-term industry experts, who've essentially been there, done that when comes to the real estate world and a potential property market crash. 

Michael Yardney, for example, whose been investing since 1971, commented last month that he couldn't see Australian property values falling even 15%-20%, let alone 30% - mainly because falls of this magnitude had never happened before, including during the 1990s recession, the Global Financial Crisis (GFC), and the period after the credit squeeze of 2017-2018. 

"The largest annual fall in modern history was when the 'overall' Australian property market fell 5.5% in 2018.," Mr Yardney explained.

"The largest peak-to-trough fall – the drop in house prices around Australia from their peak values to the bottom of the cycle - was recorded in 2018-2019 when Australian property values fell 9.9%."

Mr Yardney also reminded readers again that while we are experiencing housing market corrections, "history shows that each market behaves differently and that there are markets within markets".

He added that while consumer confidence, borrowing capacity and affordability issues were spiking, many positive points should also be taken into account including a shortage of good properties, little new construction, a strong economy and low unemployment rates.

Meanwhile, a property podcast in May with The Investor Lab and Hotspotting's Terry Ryder - a property specialist researcher and investor for over 35 years - was also very confident that no property crash was in sight for Australia.

"We have circumstances that are the least likely on the planet for our property prices to crash," Mr Ryder said.

He explained that looking at circumstances behind dramatic property crashes - such as that of the US in 2008 - was crucial to understanding how and if they would happen.

In the case of the US, Mr Ryder said the crash was based on lax lending standards, a massive oversupply of property, a recession and very high unemployment - none of which Australia is currently experiencing.

He explained our lending rules and regulations in particular were now extremely stringent.

"When everyone is panicking, that's the time to keep a cool head as that's the time when opportunities exist," Mr Ryder said.

"And what's happening with property prices is actually irrelevant - what's important is the future.

"You need to focus on areas with a strong local and diverse economy, where jobs are being created and there's a major infrastructure spend plus there's property affordability, low vacancies and high rental yields.

"These areas exist in many areas around Australia."

Where does this leave you?

Stay, or enter, the race and expect it to be a long - but also exciting - haul with plenty more ups and downs in the future.

More and more properties are being sold off-market, as sellers look to avoid expensive upfront property advertising fees. Here at Listing Loop, agents are adding new off-market listings into the loop daily, so don't stop your property search. You may find your dream home is for sale now.

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