- Home prices in Sydney and Melbourne have now been falling for over a year.
- In real, inflation adjusted terms, the current downturn is both modest in scale and duration compared to those seen in the past, including the current episode in Perth.
- There have been 55 housing market corrections in individual Australian capital city markets since 1950.
Falling home prices in Sydney and Melbourne has attracted plenty of attention this year, raising concern about the broader outlook for the Australian economy given the potential impact on employment and household spending growth.
While no one knows what the futures holds, this is not the first time that we’ve seen a downturn in home prices. And while this episode of housing market weakness has not been driven by official interest rate increases from the Reserve Bank of Australia, making it somewhat unusual to those seen in the past, nor have the declines in Sydney and Melbourne been all that unusual in terms of duration or scale.
This chart underlines that point, looking at all capital city house price corrections in Australia since 1950 in real, inflation adjusted terms.
In total, there have been 55 market corrections in individual capital city markets over this period, with the current downturn in Sydney and Melbourne still paling in comparison to the current episode in Perth where prices have now been falling for four years.
“House price corrections are more common than many Australians may appreciate,” Westpac says.
“The high inflation of the 1970s and 1980s, which often disguised material house price corrections in real, inflation adjusted terms, and the long period of sustained price growth through the 1990s and early 2000s have likely conditioned many to believe that prices rarely fall.
“The experience since then, and in particular the decade since the GFC, has clearly challenged that idea.”
As for what the future holds, Westpac expects nominal Australian home prices will fall by up to 10% over the next two years with much of the weakness concentrated in Sydney and Melbourne.
From their cyclical peaks, Sydney’s median home price has now fallen by 9% in nominal terms. The decline in Melbourne has been smaller at 5.5%.
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