Price booms historically trump downturns: Domain

According to the listings platform, the average duration of a period of rapid change, and the percentage by which home prices fluctuate, is greater when prices are inflating as opposed to falling.

On average, house prices rise 32.7 per cent from the point of price trough to peak, with an incline spanning 2.75 years. Downturns, meanwhile, generally see house prices drop 3 per cent from the point of price peak to trough over the course of 0.75 years.

Over the past 30 years, there have only been four periods where house prices across the combined capitals declined annually: in 1995–96, 2008–09, 2011–12 and 2018–19. All of these downturns registered an annual decline that peaked at less than 10 per cent. The rate of incline that preceded these corrections, however, all peaked above 10 per cent.

Dr Nicola Powell, Domain’s chief of research and economics, said the data should give Australians experiencing anxiety over the current, falling market some peace of mind.

“There’s no denying that economic shifts and global influences are making their mark on consumer sentiment and subsequently, the Australian property market,” she acknowledged.

“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.”

The data from Domain also revealed that the areas currently under the most stress also ultimately show the greatest strength when the winds change.

“As per historical standards, the premium price point is showing the greatest weakness, clearly evident in the most expensive areas of Sydney and Melbourne. 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,” Ms Powell explained. 

“This also means that when we move into a recovery phase, it will be evident first across the premium price-point.”

But the firm’s analysis also noted that while history does repeat itself, circumstances vary.

Domain acknowledged that one difference between the current downturn and its predecessors is that interest rates are currently rising, increasing the cost of a home loan and reducing borrowing capacity at a time when living costs are going up. 

“While this might mean a bigger decrease in prices than we have historically seen, this analysis suggests that it is unlikely we will see a return to a pre-pandemic price. With the current combined capitals’ median house price at $1.065 million; it would need to drop by a further 25 per cent to reach pre-pandemic pricing,” the firm stated.