Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 173

Australian and US house prices remain firm

House prices in Australia suffered only about half of the declines seen in the United States during the GFC. They then resumed their climb in 2012, fuelled by cheap debt courtesy of 12 interest rate cuts by the Reserve Bank of Australia since November 2011.

The chart below shows real house prices (i.e. after inflation) in the major capital cities over the past 45 years.

Prices have fallen in each of the major economic contractions, but have generally moved steadily upward for more than a century. Growth in house prices has been driven largely by steady population growth (mostly from immigration) in each of our main cities, a feature that is unique in the world.

Rises softening but support remains

House prices have started to soften in all the major markets over the past year. The local economy is heading for a slowdown with the end of the mining boom and the upcoming end of the housing construction boom, but there are several factors that should provide some support for house prices:

  • Interest rates are low and more cuts are on the horizon
  • Banks remain keen to lend for housing (but little else)
  • There is a seemingly never-ending flood of cashed-up immigrants (and locals) looking to buy here
  • Little risk of high unemployment (eg above 10%) for a while
  • Potential changes to superannuation rules may encourage more investment in the family home, which is likely to remain free from capital gains tax.

The high rise apartment market, however, is another story altogether. In the coming year or so we will probably see many thousands of high rise unit buyers in Melbourne and Brisbane lose money as they struggle to obtain finance to complete their purchases at boom-time prices.

US housing – recovery on track

Readers often ask why I pay so much attention to bond markets. One reason is that they are critical to the US housing market (unlike in Australia) and that in turn is an important driver of the US economy, which is still the engine of world growth and investment markets.

The US housing finance bubble was the underlying cause of the ‘sub-prime’ crisis that triggered the deepest US and global recession since the depression of the 1930s. It is also central to US economic recovery. House prices across the US more than doubled during the 2000s boom but then crashed by more than one third on average in the bust, with many cities suffering declines of 60% or more. Prices have been recovering steadily since early 2012. The key has been mortgage interest rates, which have come down from 8.5% in 2000 to below 4% since 2012.

Most Australian mortgage interest rates are variable and driven by short-term interest rates, so mortgage borrowers here are directly hurt by cash rate hikes. But the US market is different. Most US mortgage rates are fixed for up to 30 years and linked to long-term bond yields.

Because of this, as the Fed raises short-term rates in the coming years, long-term bond yields (and with them mortgage interest rates) may stay relatively low. Even when economic growth and inflation rates do rise (which they surely will in time), there is a good chance that each Fed rate hike will dampen expectations of future inflation and work to keep long yields relatively low.


Ashley Owen is Chief Investment Officer at independent advisory firm Stanford Brown and The Lunar Group. He is also a Director of Third Link Investment Managers, a fund that supports Australian charities.


Brett Edgerton
September 15, 2016

To preface my comment, this is a general comment about our housing markets and it is not specifically meant to contradict or argue against Ashley's article.

I would simply make the point that the price falls in Australian markets were coincident with the GFC, not due to it. Look at the graph for Sydney 2003 to 2009 - a cause and effect relationship is certainly not present there. It is my strong belief that the GFC had a net positive effect on the housing market (or most markets - the obvious exception is the more international Gold Coast market) over what would have happened if the GFC did not provide the government with the political cover to protect from popping what was clear to the regulators a housing bubble presenting significant risks to financial stability (as was shown by recent FOI investigations).

That is what is concerning about the RBA under Glenn Stevens in recent years - understanding those risks, but still turning to reinflate the bubble once they realised that they had severely underestimated the longevity of the resources boom. (And in the complete absence of other growth drivers... perhaps an economic contraction was worth the price of preventing a much greater one once the housing bubble pops, even if our politicians could no longer brag at the G20 about how our economy is the envy of the world!)

At least enough dwellings have been built this time - mostly apartments - to ensure the end of affordability issues for young Australians. Others can draw their own conclusions on what channels this will occur through... nonetheless, I do prefer to think positively about people, and I recall Glenn saying on a number of occasions what a pity it was that the housing "boom" was not accompanied by more building to affordably housing our people... perhaps he leaves his post with some small degree of satisfaction in that regard...

Still I think it is wise to consider the non-trivial possibility of a disorderly unwind to our housing bubble in all risk management strategies... One can listen to the purveyors of confidence and fairy dust - and allow themselves to be blinkered - or maturely consider all risks and adjust their strategy as they themselves deem necessary...


Leave a Comment:



China's little emperors prop up Aussie housing market

Joe Hockey on the big investment influences on Australia

Will the house price boom be a boon for Australian banks?


Most viewed in recent weeks

10 reasons wealthy homeowners shouldn't receive welfare

The RBA Governor says rising house prices are due to "the design of our taxation and social security systems". The OECD says "the prolonged boom in house prices has inflated the wealth of many pensioners without impacting their pension eligibility." What's your view?

House prices surge but falls are common and coming

We tend to forget that house prices often fall. Direct lending controls are more effective than rate rises because macroprudential limits affect the volume of money for housing leaving business rates untouched.

Survey responses on pension eligibility for wealthy homeowners

The survey drew a fantastic 2,000 responses with over 1,000 comments and polar opposite views on what is good policy. Do most people believe the home should be in the age pension asset test, and what do they say?

100 Aussies: five charts on who earns, pays and owns

Any policy decision needs to recognise who is affected by a change. It pays to check the data on who pays taxes, who owns assets and who earns the income to ensure an equitable and efficient outcome.

Three good comments from the pension asset test article

With articles on the pensions assets test read about 40,000 times, 3,500 survey responses and thousands of comments, there was a lot of great reader participation. A few comments added extra insights.

Coles no longer happy with the status quo

It used to be Down, Down for prices but the new status quo is Down Down for emissions. Until now, the realm of ESG has been mainly fund managers as 'responsible investors', but companies are now pushing credentials.

Latest Updates


The 'Contrast Principle' used by super fund test failures

Rather than compare results against APRA's benchmark, large super funds which failed the YFYS performance test are using another measure such as a CPI+ target, with more favourable results to show their members.


RBA switched rate priority on house prices versus jobs

RBA Governor, Philip Lowe, says that surging house prices are not as important as full employment, but a previous Governor, Glenn Stevens, had other priorities, putting the "elevated level of house prices" first.

Investment strategies

Disruptive innovation and the Tesla valuation debate

Two prominent fund managers with strongly opposing views and techniques. Cathie Wood thinks Tesla is going to US$3,000, Rob Arnott says it's already a bubble at US$750. They debate valuing growth and disruption.


4 key materials for batteries and 9 companies that will benefit

Four key materials are required for battery production as we head towards 30X the number of electric cars. It opens exciting opportunities for Australian companies as the country aims to become a regional hub.


Why valuation multiples fail in an exponential world

Estimating the value of a company based on a multiple of earnings is a common investment analysis technique, but it is often useless. Multiples do a poor job of valuing the best growth businesses, like Microsoft.


Five value chains driving the ‘transition winners’

The ability to adapt to change makes a company more likely to sustain today’s profitability. There are five value chains plus a focus on cashflow and asset growth that the 'transition winners' are adopting.


Halving super drawdowns helps wealthy retirees most

At the start of COVID, the Government allowed early access to super, but in a strange twist, others were permitted to leave money in tax-advantaged super for another year. It helped the wealthy and should not be repeated.



© 2021 Morningstar, Inc. All rights reserved.

The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.