Historic downturns offer good omen for home owners

What has ensued is a dramatic shift in the property market, which boomed to unprecedented levels during the COVID pandemic. Now, prices have fallen drastically — in August they fell at their fastest rate in 40 years while CoreLogic’s Home Value Index (HVI) compared the current market downswing to that experienced during the global financial crisis (GFC).

All these conditions have left every stakeholder searching for answers about the downturn, some of which Domain’s chief of research and economics, Nicola Powell, quashed on a recent episode of the Smart Property Investment show.

Speaking to host Grace Ormsby, Ms Powell touched on the “boom like no other”, experienced across the previous two years.

Like CoreLogic, she drew comparisons to the GFC, elaborating that the recent property upswing was the first time all Australian capital cities experienced price increases simultaneously, a trend which she described as “surprising”.

Despite the shock of the current downswing, Ms Powell explained that the market is performing “as we would expect from historical standards”.

“What I mean by that is we’re seeing greater weakness in our more expensive, bigger capital cities of Sydney and Melbourne. And we tend to see that historically. And when you drill down to the smaller geographies, we’re seeing the more premium end of those markets. So, areas like the eastern suburbs, the inner west, are seeing a pullback in price sooner, and they have seen deeper declines compared to some of those other areas.”

In good news for investors and home owners, research conducted by Ms. Powell and Domain has provided some historical findings about what to expect with this current market, notably that upswing durations tend to exceed that of a downturn.

“Upswings tend to be longer,” she said. They also tend to be steeper. What it means is we see greater rates of price increases than what we do compared to the downturn when you average it out.”

“An average upswing sees house prices rise about 33 percent from the point of trough to peak based on the last 30 years. And it spans about two years and nine months. Whereas a downturn has seen an average decline, wait for this, of only 3 percent. And that’s from the point of price peak to trough and it spans less than a year.”

However, she did caveat this point with the fact that “all price cycles are different”.

“We have seen that downturns have become greater in recent years. The 2017-19 downturn was the most substantial that we have seen.”

She added that “It’s very important to remember that interest rates are not the only thing to impact our house price cycles. There are other things that influence. Things like tax settings, banking regulation, population and income growth and also the responsiveness of new housing supply, these all have an impact on our price cycles and demand in the market”.

Ms Powell did note that the current market downturn differs from the one between 2017 to 2019, which she outlined as being a “structural downturn” because currently “we’ve got interest rates rising [and] strong levels of inflation really impacting borrowing capacity”.

She concluded with a prediction that a full recovery of the housing market is unlikely to occur until 2024.

RELATED TERMS

Offer

An offer refers to a conditional proposal made by a buyer or seller during a transaction for an asset or property, which becomes legally binding when accepted by both parties.

Historic downturns offer good omen for home owners




spi logo


Last Updated: 22 September 2022

Published: 24 September 2022

.

Leave a Reply

Your email address will not be published.

Back to top button
DRAGONINKHOUSE