In an era of record-low interest rates and high population growth, it’s been a good time to be a home owner in Australia lately, particularly in the nation’s southeastern corner.
Property prices in many locations have skyrocketed, creating an immense amount of paper wealth.
Nothing quite demonstrates just how well some owners have done than the table below from CoreLogic, revealing the proportion of properties that are now worth more than double what they were initially purchased for.
Nationwide, 39.1% of properties are now deemed to be worth double what they were purchased for based on current market valuations, largely reflecting enormous gains in Sydney and Melbourne, Australia’s largest and most expensive capitals.
“The strong capital gains evident across the Sydney and Melbourne housing markets have created a significant boost in wealth for home owners who were fortunate enough to own a property through the latest growth cycles,” said Tim Lawless, head of research at CoreLogic.
“The proportion is highest in Sydney, where 48.1% of dwellings are now worth at least double what their owners paid for them; 10 years ago the proportion was much lower at 37.2%. Melbourne follows close behind with 47.3% of dwellings worth at least twice what their owners paid, up from 38.1% 10 years ago.”
However, outside of Sydney and Melbourne, Lawless notes that the percentage of properties that have doubled in value are significantly less, reflecting softer economic conditions, lower population growth and, in most instances, less foreign and local investor activity.
“The remaining capital cities show a much lower proportion of dwellings that are worth at least double their purchase price, ranging from 25.9% of dwellings in Darwin to 37.4% in Hobart,” he says.
“Across the broad ‘rest of state’ markets outside of the capitals, regional Victoria stands out as showing the highest proportion of properties worth at least double the purchase price at 40.8%, followed by regional Western Australia at 34.8%.”
However, while many home owners have seen the value of their properties double from what they bought them for, there were some pockets across the country where prices have fallen more than what they were purchased for.
CoreLogic says that 3.4% of properties have fallen more than 10% from the time they were purchased, led predominantly by mining regions.
“The national figures hide a significant difference between the major regions of the country,” says Lawless.
“The highest proportion of dwellings worth at least 10% less than their purchase price can be found in regional Western Australia, at 17.8%. Darwin (15.1%), Perth (11.1%) and regional Queensland (11.0%) have also recorded a significant proportion of dwellings where values have slipped more than 10% below the purchase price.”
However, thanks to a rebound in commodity prices, Lawless says that conditions in many mining centres are now starting to improve with transaction volumes rising while advertised stock levels fall.
While many Australians in eastern states have clearly benefited from strong growth in house prices, the weakness in mining regions underline the cyclical nature of housing markets.
It’s likely that many people whose properties are less worth than what they bought them for did so recently, and at the top of the market following a strong gains beforehand.
That’s something to keep in mind in Australia’s larger housing markets, especially in Sydney and Melbourne, given years of strong house price growth.
Prices in those cities are now starting to slow on the back of higher mortgage rates, affordability constraints and curbs on foreign and local investors, and there’s even some talk that prices may start to fall later this year should current trends be maintained.
Throw in the prospect of higher interest rates next year, something that an increasing number of analysts are forecasting, and it suggests that the strong capital gains seen in recent years may be hard to sustain in the period ahead.
The disclaimer “past performance is not indicative of future returns” has never been more relevant, particularly for those expecting to double their money in a relatively short period of time.