Melbourne house prices peaked at $132,000 in 1989, they fell to a low of $126,000 in 1993 and didn’t pass the previous high set in 1989 until 1997. In nominal terms that is a fall of approximately 4.5% in nominal terms, but using a real house price index (deflates prices using the consumer price index) we saw Melbourne fall from 108.1 to 90.6, a fall of 16%. That is according to figures in this research article: House Prices in Australia (1970 to 2003).
Here is an interesting article on Australian property that was published in 1991:
They say history doesn’t repeat, but it rhymes.
Like the article it seems many today also are of the opinion that house prices do not fall. While some obviously realise that a tough time for property might be approaching, they are still hesitant about expecting price falls and rather talk about a 'stagnation' of the market. I think that we will be lucky to see this correction play out via flat prices for a significant period of time.
The article mentions that 100% loans were available in the 1980s at the height of the boom. It was only a few years ago that 100% loans were common place again and even 105-107% loans where extra finance (e.g. in the form of a personal loan) could be taken out to cover costs!
The article talks about Paul Keating's 'take down' of the property market, today similar (but less brash) comments are being made by the RBA as they increase rates. Of course they do not directly say they will take housing down to more sustainable prices, but read between the lines...
Warning: RBA to crunch housing boom to save economy from overheating
We have been warned: the current housing boom risks ending in tears with the Reserve Bank forced to crunch it to save the rest of the economy from overheating. Its not a new warning from the central bank, but the time is approaching that the bank will stop being nice and bash the housing sector with a brutal rate rise (or rises) that surprises the deliberately deaf and ignorant in politics, business and the media.
It’s a bit rich when the only consistent voice warning us of the dangers of rapidly rising house prices, is the Reserve Bank and its senior officials and it’s really rich that these warnings have fallen on ears made deaf by conflicted self interest.
The bank’s head of economics, assistant governor Phil Lowe, was the latest in a growing list of senior central bankers out this morning warning of the dramatic impact of rising house prices.
He joins governor Glenn Stevens, deputy Ric Battellino, assistant governor Guy Debelle and head of research Anthony Broadbent, who in the past nine months all pointed to the dangers of rapidly rising house prices to the economy and to the country’s social fabric.
It's time to batten down the hatches. A correction in Australian property prices has started. It's only a matter of time before we see whether it plays out via stagnating prices (falling real prices) or significant nominal price falls (over capital city medians, of course some areas have already had significant price falls occur), perhaps we see a combination of both.