Australia's housing booms -- and busts -- over the past decade

SAEED KHAN/AFP/Getty Images
  • Sydney and Melbourne home prices are falling, dragging nationwide measures into negative territory for the first time in several years.
  • Despite the recent downturn, there’s been few signs that it’s impacting consumer sentiment or spending patterns as yet.
  • New research from CoreLogic shows the declines in Australia’s largest and most expensive housing markets are coming from a very high base.

Australian home prices fell 0.8% in the year to June, led primarily by declines at the top end of the market.

Specifically, Sydney and Melbourne, with some isolated pockets elsewhere.

The latest downturn has received plenty of attention, both as to why it’s occurred and what effects it may have on Australia’s broader economy, particularly household spending.

As the largest store of wealth for a majority of households, there’s understandably some unease about what falling prices could do to the mindset of consumers.

While only modest in scale, there have been few, if any signs, that the wealth effect from the latest downturn has had much of an impact.

Consumer sentiment, as measured by Westpac’s survey, sits at the highest level in years. Retail sales, while still remaining soft, have also picked up a bit in recent months despite the headwinds for housing.

While solid labour market conditions, as seen in Australia’s June jobs report, go someway to explaining why the household sector is looking alright, there’s another factor that also needs to be considered.

Home prices have soared in many parts of the country over the past decade, especially in those locations where values are falling at present.

Here’s the evidence.

From CoreLogic, it shows the change in house values across the country by region in the decade to June this year. We’ve split the chart into two sections to make it easier to read, specially for those on mobile devices.

Here’s the locations where prices increased the most.

CoreLogic

And here’s the second part where prices grew substantially slower, or not at all.

CoreLogic

For unit prices, we’ve also done the same.

Here’s where prices rose the most over the past decade.

CoreLogic

And those locations where values increased by a smaller amount, or went backwards.

CoreLogic

In average weighted terms, home prices increased by 43.9%, driven by a 52.6% lift in capital city markets, outpacing growth of 16.6% in regional areas.

By type of dwelling, 73 of 88 regions saw house prices increase over the decade. For units, values rose in 53 regions.

Nationwide, house prices increased on average by 46.9%, faster than the 34.2% lift in units.

Clearly, as demonstrated by the chart, those nationwide readings were not reflective of price movements in specific regions.

As for the reason the two charts were split into halves, aside from aesthetics, the top section shows regions where real, inflation adjusted prices, increased over the decade. Any location in the bottom section saw prices decline in both nominal and real terms.

It’s also important to point out that these figures do not include holding costs such as mortgage repayments, council rates and other property-related charges.

While the figures underline why there’s no such thing as an “Australian” housing market, it also shows that while prices are now falling in Sydney and Melbourne, they’re doing so from a very high base.

With the exception of those who bought in within the last two years, many homeowners in these cities are siting on capital gains, significant in many instances, helping to explain why there’s been no real sign that a declining wealth effect is impacting sentiment and spending patterns as yet.

As for what the future holds for prices, Cameron Kusher, Research Analyst at CoreLogic, doesn’t expect the trends seen in the past decade across the country to be replicated in the decade ahead.

“The growth in house and unit values over the past decade has been characterised as very much slanted to strong growth in Sydney and Melbourne and weaker conditions elsewhere,” he says.

“While the last 10 years is not predictive of the future, dwelling values are already falling in Sydney and Melbourne and regional markets are currently outperforming capital cities.

“With housing in a downturn in Sydney and Melbourne and affordability stretched, at this point it seems unlikely the returns of the past decade will be replicated over the next 10 years.”

NOW READ: Australia’s housing market downturn is pretty tame compared to those seen in the past, so far at least

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