Melbourne property values falling at GFC pace

With Australia’s property market now declining for five consecutive months, it’s once again time to compare the current downturn with prior corrections.

The below chart shows the various dwelling corrections over the past 30-plus years at the 5-city level, as measured by CoreLogic:

As you can see, this correction is so far only mild, with the property market so far falling just 2.9% over five months. Property values across the five major capitals are also falling at their equal third fasted rate on record, behind the 1982-83 and 2008-09 corrections but equal to 1989-91.

Next is Sydney, whose 2.9% correction has also only been running for five months. Its pace of decline is fairly mild around the middle of the pack:

However, Melbourne’s 5.5% correction has been running for six months and is the equal steepest on record, on par with the 2008-09 GFC:

Finally, Perth’s housing market has been in decline for 74 months (~six years), give or take some monthly rises along the way. Perth dwelling values were tracking 22.0% from peak at 30 September – the biggest correction in history:

In forecasting falling property prices this year and next we have been working off the assumption that mortgage rates had bottomed and, as a result, future price growth would need to come from rising household incomes.

So, with net overseas migration crashing alongside high unemployment and the unwinding of emergency income supports, it seemed logical that house prices would fall significantly in Sydney and Melbourne, dragging national values lower (even with modest growth in the smaller capitals).

However, Josh Frydenberg’s recent announcement that he would abolish responsible lending laws was a policy ‘black swan’ and a potential game changer. If qualifying borrowers are permitted to borrow more and previously non-qualifying (sub-prime) borrowers are pulled into the market, alongside the RBA monetising the banks mortgage debt, then this could lead to national property price increases in 2021 as mortgage rates edge lower still and the banks lend to anybody with a pulse.

The upshot is that Australia’s housing market now represents a tug-of-war of war between lower interest rates and easier credit availability on the one side (positive for prices) and collapsing immigration, high unemployment, and unwinding of emergency policy support on the other (negative for prices).

It is already clear that this will lead to a bifurcated market with smaller non-virus capitals prices rising as Sydney struggles and Melbourne falls. There is also a split between all capitals inner-property, and their surrounding rural districts, as work from home becomes the new black post-COVID.

The scale has clearly been tipped in favour of rising prices thanks to Josh Frydenberg’s abolition of responsible lending rules and the likelihood that the RBA will seek to crunch mortgage rates to 1%, which has brightened the outlook for Australia’s property market.

Leith van Onselen


  1. So good opportunities for investors now with a nice return once immigration picks up again. If mining fades then government will have no choice but to increase immigration. Buy property late in 2020 and sell for a 30% return in 2023 is my guess.

  2. Goldstandard1MEMBER

    With everything going on, you simply can’t have a depression with house prices this high. They pop at some point. I get the whole credit loosening thing, but even that goes bad as those people can’t pay and it becomes a subprime crisis. All this is the gov treading water until the V shaped recovery happens and there is no V shaped recovery happening.
    Then what? All your past misdoings crash at the same time.

    • The fate of Melbourne house prices in many suburbs rests with baby boomers. With prices 10% below peak they just won’t sell and so -50% etc. will never occur.

      Remember there is no land tax for owner occupiers here, if they move to QLD often they are paying more annually due to hurricane insurance plus they have to pay Stamp Duty to buy there.

      They will just sit in their houses and live in misery.

      Bring in land tax though and that will really get them moving.

  3. Hard to get any real measure of Melbourne falls with no volume? Pretty much no houses are being sold so we will have to wait for things to open back up again.

  4. Arthur Schopenhauer

    The Melbourne declines are not evenly distributed. Some suburbs, with large numbers of Apartments show large averaged falls, while other suburbs have literally nothing for sale, and have no falls.
    The averaged data hides abode type and location. Standalone homes in desirable locations, don’t seem to falling at the moment.

    I’m not bullish, just pointing out to those looking to buy in Melbourne to walk around a suburb and see with your own eyes, rather than relying on aggregated data.

    • Agree with this, but do think that there’s some unusual things going on in the listings. Last night I did a map view of REA looking at Eastern Melbourne suburbs, and the numbers were up to 1000. This morning it’s down to half. Also noticed a couple of supposedly “new” listings for auction that were up a few months ago, but with reduced asking prices.

  5. $7.1T of home value in Australia according to ABS with $1.7T in debt across PPOR and Investor, this is across 10.5M properties. Those who have paid off and have cash available to deploy are likely in savings, equities, gold etc which sits at around $3T.

    If a significant downturn should happen to prices then capital could be deployed to acquire further land or housing assets. The more I review the numbers here the more it seems less likely that doomsday -50% correction is possible. While continued irrational climbs also seem less likely the $126B in savings and $3T in other asset classes can be deployed quickly should large corrections take place.

    Should a -30/50% correction take place the impact is up to $3.5 Trillion wiped off Australian’s net wealth. Considering this is the majority of Australians wealth, the impacts would be devastating and long lasting.

    Australians, the banks and successive governments should never have allow one asset class to distort everything so much. The intergenerational wealth transfer will be massive, the class divide will grow. The only true up is a massive correction to wealth holders allowing the have nots to be somewhat closer to the have’s and had’s.

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