That was no property boom, these were property booms

The most recent property boom in Sydney and Melbourne ended about a year ago.

Initially the Sydney market started to fizzle out — it’s down -4.5% over the last year. And now, Melbourne’s housing market has stalled — down -1.4% over the last quarter, but still + 1% over the last 12 months.

But we should all still remember the headlines that featured in publications across the country.

Sky-high auction clearance rates and the fear of missing out pushing up the prices of any property that was put on the market.

But how did the recent boom compare to previous property booms?

Earlier this year, CoreLogic dissected our housing cycle, categorising the past 20 years of data into five year increments, which revealed some interesting facts.

Firstly, comparing the last five years with previous market cycles showed that the increase in property prices we experienced were not as strong as some markets delivered in previous periods.

While Sydney’s property values increased 64.4% over the five years leading up to January 2018 and Melbourne dwelling prices increased 56.4% in the same period, the graphs below will show you how certain booms eclipsed these rates of growth in past cycles.

Some other trends

The following charts show that over the last two decades each region had its turn in the sun.

They also show that at some point in every cycle, it was easy to find a reason why property values would stop rising, but looking back over the last 20 years a couple of trends stand out.

1. Dwelling values have increased by 231% nationally.
2. Capital growth in our combined capital cities (+252%) outperformed the combined regional markets (+167%).
3. Melbourne was the strongest property market over the last 20 years (+335%).

Now, let’s delve deeper into these five-year periods.

January 1998 to January 2003

We experienced a housing boom at the turn of the century. But I clearly remember that when GST was introduced by the Howard government in July 2001, many commentators suggested this would decimate the construction industry. They also predicted the introduction of GST would stall our housing markets, as new homes and apartments would become disproportionately more expensive than established properties which carried no GST.

Across the nation in this cycle, house prices rose 61.9% over those five years with capital city growth out performing regional Australia, however, regional NSW grew 84.1%, topping the grow charts.

After a number of years of strong growth in the late 90s, the Sydney property market moved into a slump and underperformed for a number of years.

Source: Corelogic.

January 2003 to January 2008

The next five years were the early stages of Australia’s great infrastructure and mining boom, and these developments caused property values to explode in areas related to the resources sector.

Dwelling values more than doubled in regional Western Australia (120.7%), as well as in Perth (102.0%), where house prices were almost as expensive as in Sydney.

As you can see form the graph below, regional property markets outperformed capital city markets during this five-year period.

But no one could truly predict the impending Global Financial Crisis (GFC) that was going to change everything. In this period, the seeds were being sown by the looming subprime loan crisis in the USA.

Source: Corelogic.

January 2008 to January 2013

The GFC certainly influenced this five-year period of low growth of Australian house prices. However, despite the worst world economic downturn since the great depression, government intervention, in the form of low interest rates and first home owner grants buoyed our housing markets.

Darwin (+31.8%) and regional NT (+38.1%) were the strongest markets in this period, fuelled by our mining boom.

Source: Corelogic.

January 2013 to January 2018

Despite their falls over recent months, the Sydney (+64.4%) and Melbourne property markets (+56.4%)  were the darlings of the last five-year period, while Perth and Darwin were still smarting from the fallout after the mining boom.

And once again, the combined capitals market outperformed the regional property market, reflecting the strong economic and population trends of the current times.

Interestingly, unlike previous cycles which were brought to a halt by rising interest rates, this market slowdown has been caused by a ‘credit squeeze’ — or in other words, the lack of availability of finance, particularly for investors following APRA’s introduction of macroprudential controls over the last few years.

Source: Corelogic.

What’s ahead?

Most real estate investors are worried about the value of their properties today, particularly in light of our falling property values in some of our cities. However, in my mind, a much better question would be ‘where will property prices be five years or 20 years from now?’

And the good news is, history suggests that the value of well-located capital city properties will continue to increase in value, driven by our rising population and the wealth of our nation.

NOW READ: Nine simple rules of property investment