Housing boom and bust cycle debunked

The surge in house prices during the pandemic is likely to be followed by a modest correction, if history is to be believed.

The average housing market upswing has pushed prices markedly higher than any accompanying downturn, according to a new report.

Downturns also tend to be much shorter than upswings, lasting around a quarter of the upswing period that preceded it.

The residential property market is experiencing a downturn, largely triggered by rising interest rates that limit the amount home buyers can borrow.

The slowdown follows an intense period of housing price growth that began after lockdown restrictions eased.

Based on analysis of four property cycles since the early 1990s, Domain research and economics head Nicola Powell says a return to pre-pandemic prices is unlikely.

“When property prices fall, it can understandably make many Australians feel uncertain about their property journey,” Dr Powell said.

“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 Domain report challenges the view the housing market goes through dramatic boom and bust cycles.

Home prices tend to surge and then decline slightly, flatline or go through a period of subdued growth before trending upwards again.

During the average upswing, house prices rose 32.7 per cent from trough to peak.

By contrast, the average downturn was a three per cent decline in house prices from peak to trough.

While Dr Powell says house prices are somewhat shaped by interest rate decisions and inflation, there are always other factors at play.

“Tax settings, banking regulation, population and income growth, and the responsiveness of new housing supply to growing demand all influence property prices,” she said.

Rising interest rates are worrying mortgage holders.

As many as 30 per cent of mortgage holders are concerned about defaulting on their home loans, research from mortgage broker Aussie shows.

Similarly, 28 per cent of mortgage holders did not factor in an increase in the cash rate when budgeting for their home loan, despite having to prove they could afford higher repayments during the application process.

Poppy Johnston
(Australian Associated Press)