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Rise and Fall: What We’ve Learnt About the Australian Property Market Over the Past 20 Years

Buying Off The Plan

23 April 2019

The property market is an interesting space and never has that been more obvious than over the past two decades with extraordinary changes occurring. Over the past 25 years, strong market conditions have pushed median house prices up by 412 percent. That’s a big increase.

 

Cyclical market

The Australian property market is a cyclical one, meaning peaks and falls are influenced by factors including interest rates, employment rates, population growth and consumer confidence. Additionally, rental yields and affordability heavily weigh on the cycle. Over the past two decades, Australia has also experienced the Global Financial Crisis, heightened levels of investment and growing foreign investment.

 

What makes it all the more convoluted, however, is that each state has a property cycle of its own, and then going one step further, there are also region, suburb, price point and property type cycles as well. For example, you cannot compare the housing cycle with the apartment cycle, just like you can’t compare Sydney’s inner west cycle with Perth’s western suburbs.

 

Generally speaking, within a 10-year period, there will be between a three and four-year flat period where there’s low capital growth – the fall. This will then turn as the cycle peaks, with the following four to five years of strong price growth – the rise.

 

Over the past twenty to thirty years, there have been three distinct phases

  1. The 1980s: annual housing price inflation was high as was general price inflation. This means that the housing market rose in relation to economy.
  2. The 1990s – mid 2000s: strong housing price growth associated with an increased debt-to-income ratio.
  3. Since mid-2000s: housing price growth can largely be attributed to strong population growth.

 

What does all of this mean?

It’s all well and good to talk about cyclical markets and property booms or slumps, but what does all of this actually mean?

 

Currently, many Australians are experiencing a lack of confidence when it comes to the property market. Many are having difficulty getting finance and housing affordability is becoming a major issue. The current market is soft, there’s no doubt about that. And while it can hardly be considered a ‘crash’ the national dwelling value fall is concerning. According to CoreLogic, despite the latest monthly fall being the smallest since October 2018, national dwelling values dropped for the 17th consecutive month in March 2019. On top of this, we are currently in the weakest property market since 2008, with the two largest capital cities, Sydney and Melbourne, dragging down national dwelling values significantly.

 

What we’re seeing is a quieter market with fewer property sales and softened vendor metrics. In addition to this, auction clearance rates are down. As a result, vendor confidence has taken a hit and fewer properties are being put up for sale.

 

The only way is up

Of course, from here, the only way is up, thanks to that cyclical market of ours. If our past is anything to go by, it’s predicted that property values nationally could rise to $2.9 million by 2043. It sounds like a lot, but when you consider that the median house value across Australia was just under $112,000 25 years ago, it makes a lot of sense.

 

There will always be periods of growth, periods of decline and times when the property market stays steady. And despite volatility, history has proven that property market cycles around Australia will continue. One thing is for certain: the property market is preparing for the huge growth in population, tipped to reach 30 million people within the next decade, and according to the law of supply and demand, where population growth is strongest, a rise in house prices will follow suit.

 

 


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