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Strong rebound to follow on from market slowdown
With the property market in decline, recent data suggest the downturn could be shorter than many expect, and the ensuing rebound would likely bring values to a new high.
While the industry has widely tipped property prices to fall nationally, recent data from a property platform has found that the stereotypical Australian resilience extends beyond its people and wildlife to its housing market.
As the market enters its ninth downturn, Domain’s FY2027 Forecast Report found that since the mid-1990’s, the nation has experienced eight significant drops in the property market, with each one followed by a significant rebound shortly afterwards.
The data showed that the average decline in property values across the eight downturns was 2.9 per cent over a nine-month period.
Conversely, market upswings averaged 32.3 per cent growth and lasted around 2.8 years, or approximately 11 quarters of consecutive growth.
At the extreme ends of the scale, the upswings significantly outperformed the downswings, with the largest period of growth occurring from 2000–04, resulting in an 80 per cent jump in the market.
On the other hand, the most significant downswing was an 8.5 per cent decline in 2016–19.
As the market slowed, McGrath Estate Agents CEO John McGrath said homeowners and potential buyers needed to look beyond the short-term changes in property values.
“Wherever you are in a property cycle, you should know one thing: real estate changes invariably occur. Median values in different areas, including rental yields and vacancies, will move up and down,” McGrath said.
“In short: if you own or plan to buy property, expect adjustments and corrections.”
The report said that for the housing market to reach its previous trough of March 2023, values would need to decline by more than 20 per cent, far beyond current predictions and anything seen in three decades of housing cycles.
Domain chief residential economist Nicola Powell said that while buyer sentiment could be shifted by policy changes, the fundamentals would continue to act as the most significant influence on the property market
“While there’s heightened focus on government policy, housing cycles have consistently been driven by interest rates, borrowing capacity and confidence,” Powell said.
“Downturns can feel sharp in real time, but historically they’ve been short and shallow, and have not unwound the gains that preceded them.”
While a decline in the property market could push some homeowners into negative equity, particularly those who used the government’s first home buyer scheme, McGrath said there was still some good news for the demographic.
“Generally speaking, they won’t sell again for another seven years – the typical period of our property cycle rebounds – and by that time, values will have doubled again,” he said.
Sydney and Melbourne were tipped to suffer the largest decline in 2027, falling by 7 per cent and 8 per cent respectively.
The booming markets of Perth and Brisbane were not forecast to see their values fall, although they would slow significantly compared to their previous growth, recording a rise of 9 per cent and 7 per cent, respectively.
McGrath said that while it was important for homeowners to understand the state of the market, they had to accept that it would constantly fluctuate.
“Most importantly, expect the property market to regularly change. After all, what goes up can – and will – go down as part of the cycle. But while I encourage home buyers and owners to keep a close eye on the market at such times, I’d also advise them not to panic.”
“Instead, keep the ups and downs in context and remember that home ownership is a long-term concern.”
Similarly, Powell said that while several markets were tipped to decline through 2027, once the recovery began, they would rebound rapidly.
“When the interest rate cycle turns, demand that has been sitting on the sidelines tends to return quickly, bringing the next phase of growth forward.”
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