They say good things come to those who wait and this rings particularly true for property investors.
The Australian property market has enjoyed enormous gains in the past 30 years. This in itself is evidence of the power of long-term property investing.
There are a few stand-out patterns in the history of real estate and in this newsletter, we’ll take a close look at what insights past market upswings and downturns can offer us.
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Domain recently analysed data from almost 30 years of property cycles in the combined capitals. Here are the key take-outs from the research.
Australian house prices tend to experience a period of increases, followed by either a relatively minor fall or sluggish prices.
This is opposed to what many may believe: that the real estate market goes through massive price swings between booms and busts.
The change in property values was far greater during upswings than in downturns.
- Values in the average upswing were up by 32.7%, from trough to peak.
- Values in the average downturn were down by 3% (excluding the current downturn), from peak to trough.
On top of that, upswing phases were found to be longer than downturns.
- The average upswing lasted 2 years and 9 months.
- The average downturn lasted 9 months.
- The average period of a downturn was just over 25% of the preceding upswing.
Looking at annual change, the same trend persisted.
- Every upswing since 1995 recorded a peak annual price growth of more than 10%. (There’s one exception: the 2019-20 COVID price boom lasted for 1 year and saw 8.7% growth. It was the shortest and smallest boom in the past 27 years.)
- In every downturn since 1995, the biggest annual price falls were all less than 10%.
A downturn doesn’t always mean plummeting prices. In some downturns, prices may show little change.
- This happened in 2015 - after a 3.75-year upswing, prices eased by just -0.2% in a downturn that lasted 3 months.
A LESSON FROM HISTORY
It’s hard to predict how the property market will play out in coming years, but past cycles may be able to shed light on the future of the market.
If history is anything to go by, we can expect the current downturn to hit a floor at some point. Values will likely stabilise before increasing again.
The impact and duration of market upswings and downturns over the past 30 years proves why time spent in the market is more important than timing the market.
A RECAP OF THE CURRENT CYCLE
Domain’s analysis showed that the average downturn was over in 9 months.
On average, downturns lasted just more than 25% of the upswing before it.
- The 2020-22 boom lasted 1 year and 9 months.
- A quarter of this period is 5.25 months.
As a reminder, the median property price in Sydney (where the downturn began) first fell in February 2022.
However, prices in the combined capitals first showed a decline in May 2022.
AS SAFE AS HOUSES
While past trends can be telling, remember that every market cycle and phase has its own unique set of differentiators.
In the current downturn, we have:
- rising interest rates
- tighter borrowing restrictions
- higher levels of debt
- rapid inflation and skyrocketing living costs
This might suggest we could see a more significant dip in values compared with history, especially in Sydney and Melbourne.
But on the flip side, keep in mind the median house price across the combined capitals is $1,065,447, according to Domain.
- The most recent boom added 33.6% to the median house price in the capital cities.
- For the market to return to pre-COVID levels, values would need to tumble by a further 25% to $799,085.
Prices at a glance
Annual price changes in Sydney and Melbourne have fallen into negative territory for both houses and units.Strength in the Brisbane market has faded, with price declines recorded in both house and unit markets.Darwin is the only capital city that saw house price growth in August.The decline of regional property values is accelerating, with the combined regionals down by -1.5% in August compared with -0.2% in July.