Property prices in Australia have a long-term growth trend. According to Core Logic, Australian median house prices rose by 412% between 1993 and 2018.
But it’s important to understand that markets are constantly fluctuating and it is possible to follow the stages of each property cycle. Despite the long-term growth trend in Australian property prices, there have also been shorter-term periods where prices have declined and stagnated. We’ve seen that in all Australian property markets in recent years, including significant decreases in Sydney and Melbourne during the last two years. However those two markets may be showing early signs of recovery.
Phases in the property cycle
There are three broad phases in the property cycle. They are the:
2) Correction, and
3) Flat Phases.
Different property markets may spend different amounts of time in each phase. And different markets in Australia can be in different phases of the cycle at the same time.
The Growth Phase of the Property Cycle
Prices rise consistently during the growth phase, sometimes rapidly before reaching a peak. This phase will generally be followed by either a correction phase or a flat phase. There can be many reasons for price growth in property markets, including:
- an increase in buyer demand due to population growth, and
- changes in economic conditions, such as a decrease in interest rates making it easier for borrowers to afford a home loan.
The Correction Phase
Prices fall significantly during a correction phase. In Australia, the following property markets have had significant corrections in recent years:
- Darwin (median property values are currently 30.7% below the market’s August 2010 peak),
- Perth (currently 20.6% below this market’s June 2014 peak),
- Sydney (13.3% below its July 2017 peak), and
- Melbourne (9.5% below its November 2017 peak).
The correction phase is usually followed by a period where prices stabilise and remain fairly constant (flat) for a period.
There can be many reasons for a market correction phase, including:
- property prices rising too rapidly during a growth phase, and
- changing economic conditions, such as in increase in interest or unemployment rates that can decrease buyer demand for properties.
The Flat Phase
The flat phase in the property cycle is where prices remain at roughly the same level for a period of time. This phase can follow the growth or correction phases.
When market prices are in the flat phase after coming off the correction phase, this is sometimes referred to as the bottom of the property cycle. It can be a good time to buy because you may be able to capitalise on the next growth phase.
Examples of property markets in Australia where property prices have been fairly flat over the last twelve months include:
- Canberra (where prices have increased by just 1.2% over the past year).
- Adelaide (prices have decreased by 1.1%), and
- Brisbane (prices have decreased by 2.1%).
The Bottom Line
Unfortunately, no one has a crystal ball to accurately predict when the different property phase cycles will begin and end in any market. It’s important to constantly monitor market price information to identify trends and keep a vigilant eye on the horizon.