Retirement plans for people relying on rising property prices could be at risk following the latest drop in house prices and ongoing volatility in the housing market.
Figures released this week by the Australian Bureau of Statistics revealed the average price of established houses in the capital cities fell by 4.5 per cent compared to the previous year. The 1.1 per cent fall in the March quarter was the fifth in a row.
The ABS figures confirm that house prices in Australia have been relatively high for a while based on a number of indicators. The prospect of attractive growth rates in Australian house prices is no longer what it was.
Chief Investigator with the ARC Centre of Excellence in Population Ageing Research (CEPAR), Professor Michael Sherris, believes people who rely on property to help pay for their retirement incorrectly assume that it will continue to appreciate.
"When planning for retirement, it is important that people take into account the volatility of house prices and don't assume the value of their home will consistently rise," Professor Sherris said.
"Many people approaching retirement with less superannuation as a result of the GFC will now find their house is worth less than they expected. It's a double whammy," Professor Sherris said.
The University of New South Wales based ARC Centre of Excellence in Population Ageing Research (CEPAR) is a unique collaboration bringing together academia, government and industry to produce world-class research on one of the major social challenges of the 21st Century.
Professor Sherris, along with Dr Katja Hanewald, authored a recent study analysing the volatility of housing prices across Sydney. The study is one of the most comprehensive of the Sydney housing market. Based on data provided by Sydney-based company Residex, the study analysed Sydney house prices by postcode from 1979 to 2011.
"We found that Sydney house prices have had strong growth but at the same time the volatility has been much higher than most individuals and commentators would imagine. Also, the growth rates have varied significantly across postcode areas in the Sydney area and over time," Professor Sherris said.
"The fall in house prices in the last year is well within the uncertainty in house price growth rates that the CEPAR models would suggest, based on historical Sydney house price data. This highlights how, although house price changes can be slow moving, they can also be relatively substantial and adverse. They may not be noticed by individuals until they decide to or need to sell their property," Dr Hanewald said.