What low inflation really means for property prices

“Given the weak housing market conditions, when the annual change is adjusted for inflation, the market looks much weaker.

“Nationally, nominal values are -6.9 per cent lower over the past year compared to a ‘real’ decline of -8.2 per cent. Hobart and Canberra are the only two capital cities in which real dwelling values have increased over the past year.”

When looking at data for the last five years, Mr Kusher said real dwelling values have actually risen at a rate of 1.4 per cent per annum on a national level, but real value growth at a capital city level is more varied.

“Perth and Darwin have recorded large falls in values over the past decade, while Brisbane and Adelaide have seen small gains, while the remaining four capital cities have seen comparatively strong growth, with Hobart’s gain much greater than the rest,” he said.

“Keep in mind, the recent value falls in Sydney and Melbourne, which comprise a substantial weighting within the national and capital city indices, are dragging down the five-year growth rates.”

Looking at a longer term, Mr Kusher said real value growth over the last decade has risen by 1.3 per cent, but then again individual capital cities show a different story.

“Over the past decade, real dwelling values have fallen in Brisbane, Perth and Darwin and have barely increased in Adelaide,” he said.

“Meanwhile, Sydney and Melbourne have been the standouts for growth with real values increasing 3.3 per cent pa and 3.1 per cent pa, respectively.”

“With dwelling values expected to continue to fall throughout 2019, real dwelling values will fall even further away from their previous peaks,” Mr Kusher said.

“Although the market is typically reported in nominal terms, when you take into consideration the effect of inflation, falls are much larger and are occurring rapidly within the two largest capital cities (Sydney and Melbourne).”

What the data also reveals, however, is how quickly Sydney and Melbourne property markets have seen in real value declines since their peaks, with Sydney real values going down 16.5 per cent since their peak in the June 2017 quarter, but are not as severe as the 17.4 per cent seen between December 2003 and December 2008 and the 20.1 per cent seen between March 1989 and March 1991.

Melbourne by comparison is experiencing a real value fall of 11.8 per cent from its market peak, which is larger than the real value fall of 10.3 per cent seen during the global financial crisis between December 2007 and December 2008, but pales in comparison to the real value fall between March 1989 and December 1995, which fell by 27.4 per cent.

“With dwelling values expected to continue to fall throughout 2019, real dwelling values will fall even further away from their previous peaks,” Mr Kusher said.

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