Home values will certainly fall again: Cameron Kusher
Housing investment in Australia has generally been a successful, largely one-way bet over many years.
Although this has been the case, home values have fallen in the past, are currently falling in some capital cities and will almost certainly fall again in the future.
As can be evidenced in the accompanying charts, in most instances across combined capital cities, the Index has been rising, in fact from December 1995 to November 2015. Combined capital city home values have increased by a cumulative 330.5% and values fell in 2008 and again between 2011 and 2012.
During 2008, combined capital city home values fell by -6.1% between March and December. Home values fell by -6.5% between March 2011 and May 2012.
While the Index shows a certain set of trends, it’s important to remember that it is largely influenced by Sydney and Melbourne. In fact, combined capital city home values have increased by 8.7% over the 12 months to November 2015 however, only Sydney and Melbourne have recorded value growth stronger than that level. Values have also been declining over the past year in both Perth and Darwin.
Over the period from December 1995 to November 1995, all capital cities have seen values increase while each city has seen periods where values fall. Across the cities, the cumulative value increases have been recorded at:
• 330.1% in Sydney
• 421.4% in Melbourne
• 259.4% in Brisbane
• 261.2% in Adelaide
• 293.0% in Perth
• 208.0% in Hobart (from Sep-97)
• 180.1% in Darwin (from Apr-99)
• 258.7% in Canberra.
Of all the cities, Melbourne has led by recording the strongest rate of growth over the period followed by Sydney. Growth in Perth has been stronger than in Brisbane, Adelaide and Canberra where cumulative growth has been remarkably similar. While home values have risen significantly in each city, value falls have occurred.
There have been periods where values have fallen in a particular city but not others. As an example, from mid-2004 Sydney values started falling while in other cities, the rate of growth just slowed. Sydney home values fell by - 8.2% between March 2004 and December 2005. They then took until March 2009 to eclipse and remain above March 2004 levels.
Over the past few months we have seen early signs of value falls in the Sydney and Melbourne housing markets. Based on our data, we can see that falls have previously occurred, and will no doubt happen again, however, the question is how large; of course no one knows.
Given that investor activity has been at a record high, building approvals have also hit record highs and record high levels of household leverage there is a possibility that falls could be larger than what we have seen in the past. Note: Adjacent, the table looks at the two most recent periods of decline across the combined capital cities: the financial crisis in 2008 and as the RBA started to lift interest rates in 2011. The data shows the financial crisis saw a short, sharp fall in values and a fairly rapid recovery. The second period saw, in most instances, a much larger decline and a much longer period for recovery.
Cameron Kusher is research analyst for CoreLogic RP Data. You can contact him here.
