The Current Market Decline Compared to Previous Years

The current decline in Australian property values is significant, with national dwelling prices in May 1.1 percent below their peak on a monthly basis. According to the CoreLogic Home Value Index, the national housing market recorded its first annual decline in six years at -0.4 percent, with some state capitals following in the footsteps of Sydney and Melbourne. Despite the talk of a housing crash, however, this has all happened before in previous cycles, and it will all happen again.

The average capital city dwelling price fell by 0.2 percent in May on a monthly basis, with Melbourne leading the way at -0.5 percent, and Sydney not too far behind at -0.2 percent. While Sydney prices have fallen by a sharp 0.9 percent over the last three months to $871,454, Melbourne has overtaken the NSW capital with -1.2 percent growth over the quarter to $717,020. With these two cities representing 60 percent of Australia's housing market by value and 40 percent by number, this is a significant correction.

While it's easy to get caught up in the current situation, it's important to remember that this has all happened before. While periods of decline in the housing market are difficult to predict and certainly not uniform, all Australian capitals have experienced multiple peak to trough declines over the last 38 years. Using data from CoreLogic, let's take a look at how the current situation compares.

The greatest fall in Sydney was recorded between 1988-91, when values fell by -11.6 percent over a period of 28 months. During this price trough, it took 65 months for values to eclipse their previous peak, which did not happen until 1994. There have been seven other significant price declines since 1984 if you include the current one, with a drop of 9.5 percent recorded in 1984-85, a decline of 8.2 percent recorded in 2003-06, and a 7.0 percent drop recorded in 2008-09. Sydney is now 4.5 percent below its peak from 10 months ago, making it the fifth biggest price decline in the last 38 years.

Melbourne has also seen six periods of sustained downturn in dwelling values over the same period, the largest of which was in 2008-09 when values fell by 9.4 percent over 12 months. The longest price drop in Melbourne was in 1989-92, when prices fell 8.3 percent over three years. This downturn was very significant, with prices only returning to their peak after 36 months. In comparison, current dwelling values in Melbourne are just 1.6 percent below their peak of six months ago, which makes the current decline the fifth biggest since 1984.

The situation in other Australian capitals is mixed, with prices in Brisbane, Hobart, Canberra and Adelaide still sitting at their peak but other cities really struggling. Darwin has seen the worst price declines with a 22.3 percent drop between 2014-18, with dwelling prices in Perth now 10.8 percent below the peak value recorded 45 months ago. All in all, regional real estate values continue to outperform major cities, having jumped by 1 percent over the last three months and 2.2 percent over the past year.

 

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