Rightly or wrongly, Australia’s residential market is often compared to that of the US, UK and New Zealand. Of course there are significant differences in the market drivers and detractors that generally relate to the financial regulations, supply/demand balance, taxation rules, state of the economy and interest rates; however it is still interesting to see how our market compares.
The graph above reveals a few interesting observations.
The decline in US housing prices, which in many ways was the catalyst that got the GFC ball rolling, began when prices peaked in late 2005. The peak came after US prices rose fairly consistently year on year since 1995 at a rate of about 9% per annum. This ten year period was virtually devoid of any real cycle with regards to value movements.
The Australian market has been comparatively very cyclical. The Australian market experienced a growth phase between 2001 to early 2004 followed by a relatively flat market until 2007 when the market recorded another strong year of growth that was brought to an abrupt halt one year later as the global economy unravelled (note that the subtle growth curve during 2006 can largely be attributed to the spectacular rate of growth recorded in Perth on the back of the resources boom).
The fact that the Australian market took a breather between 2004 and 2007 may have contributed to the soft landing our market experienced in 2008.
Since global economic conditions started to improve there has been a commensurate improvement in property market conditions around the world. The rebound in Australia has been well reported locally (values are up 11.3% to November 2009), but the strong growth in the UK market and bounce in New Zealand prices seems to have largely gone under the radar.
Since the UK and New Zealand market bottomed in April 2009, housing prices bounced up by 9.4% and 5.1% respectively by the end of the year. Even the US market appears to be stabilizing, with values fairly steady since June last year.
One of the more revealing results is that all three overseas markets have recorded a large correction. Despite the recent improvements in market values, prices are still well below their peak levels. US prices are about 24% below their 2005 peak; UK prices are 15% below their mid 2007 peak and New Zealand properties are still 4.1% lower than their January 2008 high.
Meanwhile, Australia’s housing prices have progressed to their highest point ever - about 7% higher than their pre-GFC high. This of course begs the question - where will Australia prices head from here?
The views and opinions on the future of Australia’s property market range along a very wide spectrum, however the fundamental drivers of strong population growth, buoyant consumer sentiment, low levels of housing construction, average mortgage rates and an improving economy are likely to provide a healthy environment for our local market into the coming year.
Regardless of whether you think Australian prices are going up, down, sideways or otherwise, the news that overseas markets are recovering suggests that consumer confidence is once again improving globally. The importance of consumer confidence cannot be overstated as consumer behaviour has a huge bearing on economic health. Here in Australia, we have just seen consumer confidence increase by another 5.6% in January 2010 (based on Westpac-Melbourne Institute data) bringing the index to 120.1 points – only the second time the index has been above 120 points since July 2007.
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