Australian property market upswings have historically been larger and longer than subsequent downturns where prices drop slightly or flatline, new research reveals.
According to Domain, over the past 30 years the duration and level of house price growth in an upswing spanned an average 2.75 years, with prices rising, trough to peak, an average 32.7 per cent.
Conversely, in an average downturn, house prices dropped just 3 per cent over a period of nine months.
Domain Chief of Research and Economics, Dr Nicola Powell said house prices typically didn’t go through wild boom and bust phases in Australia.
“There’s no denying that economic shifts and global influences are making their mark on consumer sentiment and subsequently, the Australian property market,” Dr Powell said.
“When property prices fall it can understandably make many Australians feel uncertain about their property journey, however, it is important to remember that property has historically moved through upswings and downturns, and there are lessons that can be learnt from previous price cycles.”
According to Dr Powell, it’s more important to hold a property for a long period of time, rather than try to time the market.
“Our analysis of directly comparing the steepness and duration of an upswing and subsequent downturn since 1995 supports the argument that it is not timing the market that is important, it is the time spent in the market that counts,” she said.
“It also illustrates that the duration of an upswing tends to be longer than the subsequent downturn.
“This results in a greater increase in price relative to the subsequent decline, and downturns have historically been shorter and less severe compared with the preceding upswing.”
Dr Powell said was important to watch the higher-priced markets to gauge where prices would head next.
“As per historical standards, the premium price point is showing the greatest weakness, clearly evident in the most expensive areas of Sydney and Melbourne,” she said.
“Premium-priced areas tend to lead price cycles, and while they may appear more vulnerable during a downturn, they see greater rates of price growth during the upward growth phase.
“This also means that when we move into a recovery phase, it will be evident first across the premium price point.”
There have only been four periods where house prices across the combined capitals declined annually since the early 1990s – during 1995-96, 2008-09, 2011-12 and 2018-19.
All downturns over the past three decades had an annual decline that peaked at less than 10 per cent.
The decline was minor relative to the higher rate of incline that had preceded it.
In comparison, all upswings had an annual increase that peaked above 10 per cent, apart from the pandemic-interrupted upswing of 2019-20.
A difference between the current downturn and its predecessor, is that interest rates are rising, increasing the cost of a home loan and reducing borrowing capacity at a time when living costs are soaring.
While this might mean a bigger decrease in prices than historically seen, the analysis suggests we are unlikely to see a return to pre-pandemic prices.
With the current combined capital’s median house price at $1.065 million, values would need to drop a further 25 per cent to reach pre-pandemic prices.
“The speed and scale at which prices soften depends on many factors – however, the downturn will be somewhat shaped by how high and quickly interest rates go up, and the height inflation reaches,” Dr Powell said.
“Furthermore, tax settings, banking regulation, population and income growth, and the responsiveness of new housing supply to growing demand all influence property prices.
“It is important for Australians to remember that the ups and downs of prices are illustrative of a healthy property market – just like the expansion and contraction of an economy.
“If we view property as a longer-term investment, timing the market becomes less important.”
