July 2018 Newsletter

LESSONS FROM THE PAST: HOUSING TRENDS

In the thick of markets fluctuating and home owners and investors not knowing whether they should invest now or hold fast until things stablise, it’s tempting to look back at the past and see what housing trends from yesteryear can teach us…

Market analysts CoreLogic have done just that, recently releasing data that indicates significant declines are part and parcel of housing prices in all states across Australia and have been for some time.

Cameron Kusher from Corelogic explains that in Sydney since 1984-85 there have been a number of periods of decline, with the greatest fall recorded between 1988-91 when values fell by 11.6 per cent in just 28 months.

The report states that: “Following that period of decline it took 65 months (until 1994) for values to eclipse their previous peak. Other downturns have typically resulted in more moderate falls in values and a much quicker recovery to the previous peak.”

So too in Melbourne where there’s been six periods of sustained downturn in dwelling values over the same period of time, the longest of which was between 2008 and 2009 when values fell by 9.4 per cent in 12 months.

“The longest downturn was between 1989 and 1992 in which values fell -8.3% over three years. This downturn was also the one which resulted in the longest period for values returning to their previous peak with values remaining below their peak for 91 months between 1989 and 1997,” the CoreLogic report added.

Similarly in Brisbane there have been significant periods of decline, even though right now in the Queensland capital property prices overall are at a peak.

“There have been four recent periods of decline, the largest of which between 2010 and 2012 saw values fall by -10.6% from their peak. This same downturn resulted in the longest period in which values were below their peak, stretching for 61 months between 2010 and 2015.”

In Adelaide there have been three sustained downturns in values, the greatest of which saw values fall by -8.0% over 28 months between 2010 and 2012. They then remained below their previous peak for 57 months between 2010 and 2015.

And in Perth there’s been a number of downturns in the housing market largely due to the boom and bust resources-dependent economy that WA operates within. The downturn between 2008 and 2009, although short-lived, resulted in the greatest overall fall in values with a decline of 11.0% in 13 months.

The current downturn has seen housing values fall by -10.8% from their peak in 2014, and it seems likely it will take some time for values to return to their previous 2014 level.

UPS AND DOWNS EVERYWHERE

In stark contrast to the rest of the country, housing prices continue to be on the up in Hobart. But even the Tasmanian capital has still seen a number of periods over recent years in which values have declined.

“The period between 2010 and 2012 saw the largest of these declines with values falling by -10.5% over 27 months. Following this 27-month decline in values, values took until 2016, 74 months after the peak to return to this peak,” the CoreLogic report says.

In Darwin although there isn’t as much historical data to play with, statistics show there has been two periods of sustained downturns in values. The current downturn has seen values fall from their peak by -22.3% over 45 months even though values have actually increased over the past two months. CoreLogic predicts however that it will take some time to get back to peak levels in Darwin.

And in the ACT there have been a number of periods when prices fell over recent years; the greatest between 1194 and 1996 when they fell by -14.7 per cent.

In conclusion Mr Kusher says from the numbers alone we can assume that: “the rebound following the decline is typically faster than the decline. Of course there are some notable exceptions to this.”

Without the invention of a real estate market crystal ball, it’s kind of hard to tell, but one thing’s for sure and certain, only time will tell.

SYDNEY HOME PRICES: WHERE TO NOW?

There’s probably not a more focused-on topic (apart from what the Kardashians are up to on any given day) than Australia’s housing market – and what prices are up to.

For some years it was about the booming market and how high home values could get to. Today, particularly in the midst of winter, the talk is about falling prices. The latest figures from the Australian Bureau of Statistics (ABS) show residential property prices fell by 0.7 per cent in the March quarter, led by the first annual slide in Sydney in six years and the first quarterly price decline in Melbourne for five-and-a-half years.

If anything, it’s keeping economists and other property pundits on their toes as to where home values are heading.

Louis Christopher from SQM was reported as predicting a four per cent slide in 2018 for Sydney and up to three per cent for Melbourne.

ANZ initially expected price falls, if any, to be very modest and short-lived. Now they’re predicting Sydney and Melbourne prices may decline about 10 per cent from peak to trough. Similarly an economist at Macquarie, Justin Fabo, has forecast a peak-to-trough fall in Sydney of about 10 per cent. However, Fabo’s note (co-authored with Ric Deverell) also pointed out that despite falling 4.5 per cent since the peak last year, Sydney home prices are still up 66 per cent compared with their last trough in 2012.

And as highlighted by the article above, Australia certainly is no stranger to moderate home price falls after previous booms, with half a dozen other such corrections since 1980.

What many economists do agree on is that tighter loan restrictions are pushing home prices down. ANZ analysts have argued that home prices would actually be rising if it wasn’t for the lending restrictions, due to strong employment and economic growth and continued record-low interest rates.

Interestingly, in an abc.net.au article it was reported that Macquarie analysts argue that most of the credit tightening that is likely to occur already did between 2015-17. “We don’t see strong incentives for banks to noticeably restrict housing credit against a relatively positive macro [economic] backdrop and given that a large share of their profits (and balance sheets) rely on housing lending,” stated the analysts.

And given that home prices have been declining at a moderate three per cent annualised rate nationally and four per cent in Sydney, Macquarie believes this is a healthy correction. “While market corrections are always worrisome for some, we think the regulators would be largely delighted with the orderly cooling of housing markets so far,” they stated.

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July 2018 Newsletter