Are all property downturns the same?

EXPERT OBSERVATION

After many years of strong increases in dwelling values, the two largest housing markets, Sydney and Melbourne, have begun to see values fall over recent months.  While values are declining in both cities the speed of the declines vary greatly, both compared to one another and compared to other recent downturns in these housing markets.

Since values peaked back in July 2017, Sydney dwelling values have fallen by -3.9% over the following eight months.  If we look at the three previous downturns highlighted in the above chart, in the 2003-06 downturn values had fallen by -5.8% eight months in and went on to decline by -8.2% over 25 months before values started rising again.  In the 2008-09 downturn, values were -4.9% lower eight months in and went on to fall by -7.0% over 12 months.  The 2010-11 downturn saw values fall from their peak to their trough by -3.7% and after 8 months they had fallen by just -1.0%.

 Dwelling values in Melbourne have not been falling as quickly or for as long as those in Sydney.  After the market peaked in November of last year, values have fallen by -0.7% over the four months to March 2018.  In 2003-04, values fell by a total of -3.0% over nine months and were -1.0% lower after four months of declines.  In 2008-09 values fell for 11 months, they had fallen by -3.9% over the first four months and ended up declining by -9.4%.  In the first four months of the 2010-12 period of value falls values were -2.2% lower before they ultimately fell by -8.4%.  Outside of these recent declines, values recorded a peak to trough fall of -8.3% between 1989 and 1992 with values falling by -2.5% over the first four months of this period.

Two other capital cities, Perth and Darwin, have been recording value falls for some time.  Although their declines are somewhat lengthier and different to recent falls in Sydney and Melbourne, it is valuable to analyse how these declines have evolved.

Perth dwelling values increased in March 2018 however, over the period from June 2014 to February 2018 values fell by -11.0%.  There is no guarantee that these declines are over as yet although the pace of these declines has steadied recently.  It is also interesting to note that during the most recent period of value falls the declines began much more moderately on a month-to-month bases than they did in 2006-07, 2008-09 and 2010-11, with the downturn stretching on much longer than any of these previous downturns.  In 2006-07, values fell by -3.7% in five months, in 2008-09 values were -11.0% lower over 13 months and in 2010-11 values declined by -9.1% over 19 months.

 Darwin has only seen two recent period of market downturn, between October 2010 and September 2011 and from May 2014 to February 2018 (values rose over March 2018).  Again, it should be noted although values have risen over the month it doesn’t necessarily mean the downturn is over.  Over the 11 month downturn in 2010 and 2011, Darwin dwelling values fell by -7.9%.  The more recent downturn saw value declines start slower than those in 2010-11 with the downturn stretching for much longer.  As at February 2017 Darwin dwelling values have fallen by -22.3% from its previous peak in May 2014.

While these charts are interesting to consider they don’t provide any particular guidance as to how deep or elongated the current downturns in Sydney and Melbourne may be.  The weak housing market conditions in Perth and Darwin were largely a symptom of weak economic and demographic conditions, while the current downturns in Sydney and Melbourne are occurring against reasonably strong economic and demographic conditions; the slowdown is primarily being influenced by tighter credit conditions.  

What is interesting is that comparing to Perth and Darwin shows that just because they have started falling slower than other housing market downturns doesn’t necessarily mean they won’t end up as a deeper and longer downturn.  Of course the reverse is true as well but it will be interesting to see how deep and how long these current downturns persist for in Sydney and Melbourne and whether they lead to downturns in other cities and regions too.

CAMERON KUSHER is head of research for CoreLogic. You can contact him here.