Charting Australia’s historic house price bust

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By Leith van Onselen

With Australia’s housing correction now dragging on for 16 months, and peak-to-trough declines totalling 7.8% at the capital city level, it’s an opportune time to compare this correction to prior episodes.

The below chart shows the various dwelling corrections over the past 30-plus year at the 8-city level, as measured by CoreLogic:

As you can see, this is the third longest running housing correction since the early 1980s, but the second biggest in terms of depth. The deepest correction was 8.7% in 1982-83, whereas the longest was 21 months in 1989-91.

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Next is Sydney, whose correction has been running for 18 consecutive months with cumulative losses of 12.3%. This is the second deepest correction versus prior episodes, as well as the third longest in terms of duration:

The deepest correct occurred in 1982-83 when values dived by 17.4%, whereas the longest correction was in 1989-91 and 2004-06 at 24 months.

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Next is Melbourne, whose correction has been running for 14 consecutive months with cumulative losses of 8.7%. This is the equal second deepest thus far and the third longest in terms of duration:

The deepest and longest correction was in 1989-92, which lasted 36 months and values fell 10%. This will almost certainly be overtaken soon.

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Finally we have Perth where values have fallen for over four years with cumulative losses of 16.5%, blowing away prior corrections:

Finally, here’s how the current corrections across Sydney, Melbourne and Perth compare:

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As you can see, the pace of losses has accelerated across each market.

What makes this property bust so unique is that it has occurred with official interest rates at all-time lows and the economy at the macro level seemingly travelling okay. There are also stiff headwinds on the horizon, given:

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  • Tightening credit standards in the wake of the imminent release of the banking royal commission’s final report;
  • Ongoing out-of-cycle mortgage rate increases by the banks due to rising funding costs;
  • The ongoing interest-only mortgage reset;
  • The evaporation of Chinese demand;
  • The crackdown and evaporation of demand from SMSFs; and
  • Labor’s negative gearing and capital gains tax reforms.

Reading the tea leaves, this housing bust seems likely to run into 2020, by which time it will almost certainly be the biggest in modern Australian history.

[email protected]

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.