- Australia’s median home price has fallen for 13 consecutive months.
- Since 1975, real, inflation-adjusted property prices, have still risen by around 300%, the fastest increase of any developed economy over this period.
- Based on fundamental factors, modelling from Deutsche Bank says Australian home prices are still overvalued by 40%.
Australian home prices have been falling for over a year, led primarily by weakness in Sydney and Melbourne.
However, even with the recent pullback, Australia still remains the undisputed champion of property price growth over the past four decades, at least compared to other developed economies.
From Deutsche Bank, it looks at real, inflation-adjusted property price growth since 1990 and, going further back, to 1975.
While real property price growth in Australia has been outpaced New Zealand and Ireland since 1990, over a longer period, there is no contest — Australia is clearly number one.
Given the scale of the increase seen since 1975, some 300% in real terms, Deutsche Bank says valuations in Australia are still 40% overvalued based on its fundamental valuation model, even with the recent price dip.
“Most importantly, disposable household incomes have stagnated, and residential investment rose back towards 6% of GDP again over the last year,” it says.
“Consequently, the model still sees Australian housing about 40% overvalued on fundamentals.
“Therefore, the Australian housing market remains elevated for idiosyncratic reasons.”
The Deutsche Bank valuation model uses five metrics — real disposable income, real 10-year bond yields, dwelling investment as a percentage of GDP, annual inflation and population growth — to evaluate what markets are over and undervalued based on fundamental factors.
As at the end of June this year, the model deemed New Zealand’s housing market to be the frothiest of those monitored. At the other end of the spectrum, Switzerland is deemed to have the most undervalued market.