What falling apartment prices may mean for home buyers and investors

While a detached house with a yard for the kids to play in and a couple extra rooms is desirable, apartments also have plenty benefits to offer. For one, they often require less maintenance and may be considerably cheaper to keep warm in winter. Secondly, no one can see through your windows if you decide to build a blanket fort and play video games all night.

Despite these considerable benefits, apartments price increases are showing signs of slowing in several of Australia’s major cities. To help us understand why this is happening we’ll have a look at the current state of the apartment and housing market in Australia, using what we find to determine how it may affect you or your home loan.

The market is maturing

Large, developed cities such as Vancouver and London house over 35 per cent of their residents in apartments, while Melbourne sits at only 5 per cent according to the Department of Environment, Land, Water and Planning (DELWP).

According to the same source, markets such as Melbourne (and potentially others around Australia) are heading the same way as their apartment markets mature. Evidence of this maturation is clear when looking at the recent increase in apartment approvals. These figures went from 4,000 approvals on average per-year in the period 2001 to 2007, to a whopping 14,000 approved in 2014 as found by the DELWP.

Prices are decreasing

The basic rules of economics suggest that  maturation of the market and the massive increase in supply may cause apartment prices to decrease – especially in large cities. In fact, this phenomenon has already been observed in Melbourne as a Real Estate Institute of Victoria report recently found that the average apartment price in the city decreased by 1.8 per cent last year.

Coupled with evidence from CoreLogic, which recently revealed that combined national apartment and unit sales volume has decreased by over 14 per cent last year, we can begin to see clear indications that Australia’s apartment market is slowing down.

A trend towards price decreases across the apartment market may render apartments in big cities an unwise investment, especially for those looking for capital gains profits.

On the flip-side, these price decreases may bode well for first and second home buyers, looking to make the leap onto the bottom rung of the property ladder. While many such buyers may prefer detached houses, apartments’ continued price decreases may make them a more obtainable stepping stone to bigger and better homes and a smaller first home loan.