By Craig Francis | 23-8-2022 | Residential
New research has shown that periods of national property price booms last around three times longer than the downturns that only eat away at a fraction of the gains.
But the question of whether this pattern will endure during the current period of price falls is less clear.
In previous property booms, house prices on average rose 32.7 per cent and the upswing on average lasted on average 33 months.
Meanwhile, in previous downswings, house prices on average declined three per cent and the period of falls on average lasted nine months.
There have only been four periods where house prices across the combined capitals declined annually since the early 1990s – during 1995-96, 2008-09, 2011-12 and 2018-19.
Dr Nicola Powell, Domain Chief of Research and Economics said, “All downturns over the past three decades had an annual decline that peaked at less than 10 per cent,” Dr Powell said.
“The decline was minor relative to the higher rate of incline that had preceded it.
“In comparison, all upswings had an annual increase that peaked above 10 per cent, apart from the pandemic-interrupted upswing of 2019-20.”
“Australians have this view that property prices go through these wild upswings and downturns when actually when you put it into perspective of historical performance … capital cities go through periods of strong growth and quite often prices surge but when we get to the downturn, it’s minor in comparison,” she said.
Inflated prospects
Nerida Conisbee, Ray White Chief Economist, said the chances of a sustained downturn and declines in prices looked to be steadily dissipating.
Conisbee cited the example of the United States, where a mild easing of inflation to 8.5 per cent from above 9 per cent has been enough to drive investors back into the stock market, pushing it back up 15 per cent on mid-June lows.
And American tech real-estate marketplace company Zillow now predicts that US house prices will still climb 2.4 per cent over the next 12 months.
“Although Australia’s consumer price increases are not moving as quickly as the US, over the past seven weeks there has been a noticeable decrease in petrol prices and supply chains seem to be moving a bit quicker, Ms Conisbee said.
“With inflation drivers improving and markets feeling more confident about the outlook, it does look like the housing downturn may be over sooner than expected.”
- Nerida Conisbee, Ray White Chief Economist
“With inflation starting to pull back, so to does the need to raise interest rates.
“In Australia, the ASX 30-day interbank cash rate futures are currently implying an interest rate peak of around 3.6 per cent mid-next year, with rates then coming back from around October.
“Importantly, the expectation of how high the peak will be continues to pare back - a few months ago, it was expected to be well over four per cent.”
“With inflation drivers improving and markets feeling more confident about the outlook, it does look like the housing downturn may be over sooner than expected.
“Clearance rates are already starting to look more positive, hitting a 12-week high over the weekend,” Ms Conisbee said.
The Baltic Dry Index, which measures the cost of shipping worldwide, has dropped almost 80 per cent. Given how significant fuel and supply chains were to high inflation, there is the prospect that high inflation may be over sooner than later and with it the rate hike cycle.
https://www.apimagazine.com.au/news/article/is-this-property-downturn-different-to-others?ce_code=QXkrPviD2kjv0b7O0eK5Ral9eB7Vmsw&utm_source=api+newsletter&utm_medium=email&utm_campaign=api+newsletter&utm_content=2022-08-25