Historically, price booms outweigh downturns: Domain

Domain has looked at combined property price cycles in Australia over the past 30 years and found that generally the length and slope of a recovery is longer and steeper than a decline.

According to the ad platform, the average duration of a period of rapid change and the percentage of house price fluctuation are greater when prices are rising rather than falling.

On average, house prices rise 32.7% between trough and peak prices, with a slope spanning 2.75 years. Downturns, on the other hand, typically see house prices drop 3% between the price high and low over a 0.75-year period.

Over the past 30 years, there have only been four periods when house prices in the combined capitals fell each year: in 1995–96, 2008–09, 2011–12 and 2018–19. All of these slowdowns recorded an annual decline that peaked at less than 10%. However, the rate of tilt that preceded these corrections all peaked above 10%.

Dr Nicola Powell, Domain’s head of research and economics, said the data should give Australians anxious about the current market downturn some peace of mind.

“It is undeniable that economic changes and global influences are taking their toll on consumer sentiment and subsequently on the Australian property market,” she acknowledged.

“When property prices fall it can understandably make many Australians uncertain about their property journey, however, it is important to remember that property has historically had its ups and downs, and there are lessons that can be learned from previous price cycles.”

Data from Domain also revealed that the areas that are currently under the most stress also show the greatest strength when the winds change.

“By historical standards, high-end pricing is showing the greatest weakness, clearly evident in the more expensive parts of Sydney and Melbourne. High-priced areas tend to lead price cycles, and although they may seem more vulnerable during a downturn, they experience higher rates of price growth during the upswing phase,” Powell explained.

“It also means that when we enter a recovery phase, it will first be evident through the high-end price.”

But the company’s analysis also noted that while history repeats itself, circumstances vary.

Domain acknowledged that one of the differences between the current downturn and its predecessors is that interest rates are currently rising, which increases the cost of a home loan and reduces borrowing capacity at a time when the cost of life increases.

“While this may mean a larger price decline than we have seen in the past, this analysis suggests that we are unlikely to see a return to pre-pandemic price. With the median price of homes in the current combined capitals at $1.065 million; it would need to fall another 25% to reach pre-pandemic prices,” the company said.

About the Author

Juliet Helmke

Based in Sydney, Juliet Helmke has extensive reporting and writing experience in business, technology, entertainment and the arts. She was previously an editor at the New York… Read More

Historically, price booms outweigh downturns: Domain

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Last update: August 23, 2022

Posted: August 24, 2022