With Australian dwelling values falling for 12 consecutive months, according to CoreLogic (see next chart), it’s an opportune time to compare the current housing correction to prior episodes.
The below chart shows the various dwelling corrections over the past 30-plus year at the 8-city level:
The current correction has been running for 12 consecutive months with cumulative losses of 3.7%. While this correction is so far moderate compared to prior corrections, it is the third longest in duration.
Next is Sydney, whose correction has been running for 13 consecutive months with cumulative losses of 6.4%. This is also so far a fairly moderate correction versus prior episodes, although it is already the fourth longest in terms of duration:
Next is Melbourne, whose correction has only been running for 10 consecutive months with cumulative losses of 4.5%. While this is obviously a fairly moderate correction so far, it is the second steepest:
Finally we have Perth where values have fallen for a record 51 months with cumulative losses of 14%, blowing away prior corrections:
While the property correction so far is nothing special, it has occurred with official interest rates at all-time lows and the economy at the macro level chugging along, which is unusual. There are also stiff headwinds on the horizon, given:
- Tightening credit standards in the wake of the banking royal commission;
- Out-of-cycle mortgage rate increases by the banks;
- The interest-only mortgage reset; and
- The prospect of Labor’s negative gearing and capital gains tax reforms.
Therefore, the housing correction seems likely to run through to 2020, by which time it could be the biggest in modern history.