The Urban Developer
AdvertiseEventsWebinarsUrbanity
Industry Excellence
Urban Leader
Sign In
Membership
Latest
Menu
Location
Sector
Category
Content
Type
Newsletters
Urban Leader Awards Logos RGB White
NOMINATIONS CLOSE SEPTEMBER 12 RECOGNISING THE INDIVIDUALS BEHIND THE PROJECTS
NOMINATIONS CLOSING SEPTEMBER 12 URBAN LEADER AWARDS
LEARN MOREDETAILS
TheUrbanDeveloper
Follow
About
About Us
Membership
Awards
Events
Webinars
Listings
Resources
Terms & Conditions
Commenting Policy
Privacy Policy
Republishing Guidelines
Editorial Charter
Complaints Handling Policy
Contact
General Enquiries
Advertise
Contribution Enquiry
Project Submission
Membership Enquiry
Newsletter
Stay up to date and with the latest news, projects, deals and features.
Subscribe
OtherTed TabetTue 19 Mar 19

Sydney and Melbourne Downturn Only at Halfway Point: BIS

TUD+ MEMBER CONTENT
d3dd8a0c-7909-4000-8662-5ba6b4c4386f
SHARE
87
print
Print

A historical look at the history of Australia's numerous housing downturns reveals that markets in Sydney and Melbourne are only halfway through the average downturn cycle with prices expected to fall a further 5 to 10 per cent over the next 12 months.

According to economic forecaster BIS Oxford Economics, markets are likely to continue to decline in 2019, particularly given the constrained availability of credit and ongoing weakness in investor demand.

BIS Oxford Economics study author Angie Zigomanis noted in the context of previous market downturns, real prices in Sydney and Melbourne have been falling at a faster rate than historical benchmarks.

“So far, the period of decline in these two markets has been much shorter than the longest downturn duration and around half of their respective average downturn lengths in both the house and unit markets,” Zigomanis said.

“It is foreseeable that the current downturn in the Sydney and Melbourne markets may have at least another year to run before reaching the cyclical trough.”

There is, however, some upside in Adelaide and Canberra.

In contrast to those of Sydney and Melbourne, Adelaide real prices have grown and that market is not going through a downturn. Its last downturn was between 2010 and 2013.

Related: What Can We Learn from 30 Years of Sydney Property Markets

Real prices in Sydney and Melbourne have been falling at a faster rate than historical benchmarks.


Sydney

A historical look at Sydney's four downturns has found average length of time is 14 quarters with the current downturn, which commenced in June 2017, is currently sitting at its sixth quarter to December 2018.

The city is currently experiencing its sharpest downturn since 1965 with real prices falling 14 per cent within six quarters.

Prices have weakened by approximately 21 per cent on average in total during each historical downturn.

Whether Sydney would re-enact its worst downturn recorded since 1965, the 1980s downturn, which saw 34 per cent price drops over 23 quarters, was yet to be seen.

BIS also noted that inflation in the 1980s was higher, causing more volatile price swings whereas lower inflation now could curb deep movements.

The Sydney apartment cycle mirrors its house price cycle, with real prices down 13 per cent at the halfway mark.

“Significant levels of new unit supply – surpassing previous records – are expected to continue to put downward pressure on prices in the Sydney unit market,” Zigomanis said.


Image: BIS Oxford Economics

Melbourne

The average duration between peak and trough in Melbourne has historically averaged 11 quarters, while the average real price decline was around 15 per cent.

The present downturn has been significantly sharper at the same stage compared with previous downturns, with records showing prices had declined by between 7 per cent and 9 per cent at corresponding points in time during the other downturn periods.

Melbourne unit prices have experienced four periods of decline in real terms since 1984 with the most significant thus far being the 23 per cent decrease which occurred between June 1989 and March 1996.

The average duration of downturn historically has been 11 quarters, while the average price reduction experienced across the four downturns has been 11 per cent.


Image: BIS Oxford Economics

Brisbane

Brisbane, which has experienced four downturns since monitoring began in 1978, averages a length of nine quarters.

While the most significant real price decrease during a downturn was 20 per cent, the average reduction per downturn has been just under 11 per cent.

“Brisbane house prices are expected to remain relatively flat over the next 12 months, although there is a risk house prices could also begin to weaken in nominal terms,” Zigomanis said.

The average duration of Brisbane’s unit market downturns has been eight quarters, however the city is currently experiencing its longest downturn with real prices declining from a June 2015 peak.


Image: BIS Oxford Economics

Quarterly construction work fell to a seasonally adjusted $51.1 billion from $52.7 billion in the September quarter, making for the lowest reading since March 2017.


Implications for the building industry

Analysts warned that declining prices will also weigh heavily on the building industry.

“Price declines are typically accompanied by a reduction in turnover with upgraders tending to sit out of the market until conditions for them to sell their existing dwelling improve, which in turn reduces demand from those who would upgrade to a new house,” Zigomanis said.

Further declines in median house and unit prices will adversely impact the feasibility of a variety of potential new projects, particularly in circumstances where the price paid for land has been high compared to current market.

“As a result, the next round of development may be delayed pending an uplift in house and unit prices.”

ResidentialAustraliaReal EstateSector
AUTHOR
Ted Tabet
The Urban Developer - Journalist
More articles by this author
website iconlinkedin icon
ADVERTISEMENT
TOP STORIES
Stockland bumps up its apartment pipeline in melbourne and sydney
Exclusive

Stockland Re-Enters Density in $5bn Apartment Play

Renee McKeown
4 Min
Woolloongabba Precinct Vulture St
Exclusive

Brisbane Developer in Cross River Rail Compensation Tussle

Clare Burnett
4 Min
The Mondrian Gold Coast hotel's food and beverage is driving profits
Exclusive

Touch, Taste, Theatre: What’s Driving Mondrian’s Success

Renee McKeown
6 Min
Fortis’ display suites are designed as brand environments first, with tactile details and curated design to build buyer confidence before project specifics.
Exclusive

Relevant or Redundant: Will Tech Kill Display Suites?

Vanessa Croll
7 Min
Exclusive

Missing Heart: Why The Gold Coast Needs a CBD

Phil Bartsch
7 Min
View All >
Stockland bumps up its apartment pipeline in melbourne and sydney
Exclusive

Stockland Re-Enters Density in $5bn Apartment Play

Renee McKeown
South Melbourne social housing precinct
Affordable & Social Housing

South Melbourne Housing Precinct Revamp Takes Next Step

Leon Della Bosca
JQZ Parramatta EDM
Residential

JQZ Plots 10-Storey Addition to Parramatta ‘Auto Alley’ Plans

Clare Burnett
The Sydney developer is pushing ahead with a project it picked up following the collapse of Dyldam in 2020....
LATEST
Stockland bumps up its apartment pipeline in melbourne and sydney
Exclusive

Stockland Re-Enters Density in $5bn Apartment Play

Renee McKeown
4 Min
South Melbourne social housing precinct
Affordable & Social Housing

South Melbourne Housing Precinct Revamp Takes Next Step

Leon Della Bosca
2 Min
JQZ Parramatta EDM
Residential

JQZ Plots 10-Storey Addition to Parramatta ‘Auto Alley’ Plans

Clare Burnett
3 Min
The Adelaide purpose built student accommodation market is about to increase by 1058 beds with the State Commission Assessment Panel supporting two towers in the making.
Student Housing

Highrise Approvals Add 1000-Plus PBSA Beds in Adelaide

Renee McKeown
3 Min
View All >
ADVERTISEMENT
Article originally posted at: https://www.theurbandeveloper.com/articles/the-anatomy-of-australias-housing-downturn-bis