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.

 

1 Comments
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:

RELATED ARTICLES

China's little emperors prop up Aussie housing market

A developer's take on Australia's housing issues

Australian house prices close in on world record

banner

Most viewed in recent weeks

Are LICs licked?

LICs are continuing to struggle with large discounts and frustrated investors are wondering whether it’s worth holding onto them. This explains why the next 6-12 months will be make or break for many LICs.

Retirement income expectations hit new highs

Younger Australians think they’ll need $100k a year in retirement - nearly double what current retirees spend. Expectations are rising fast, but are they realistic or just another case of lifestyle inflation?

Welcome to Firstlinks Edition 627 with weekend update

This week, I got the news that my mother has dementia. It came shortly after my father received the same diagnosis. This is a meditation on getting old and my regrets in not getting my parents’ affairs in order sooner.

  • 4 September 2025

5 charts every retiree must see…

Retirement can be daunting for Australians facing financial uncertainty. Understand your goals, longevity challenges, inflation impacts, market risks, and components of retirement income with these crucial charts.

Why super returns may be heading lower

Five mega trends point to risks of a more inflation prone and lower growth environment. This, along with rich market valuations, should constrain medium term superannuation returns to around 5% per annum.

The hidden property empire of Australia’s politicians

With rising home prices and falling affordability, political leaders preach reform. But asset disclosures show many are heavily invested in property - raising doubts about whose interests housing policy really protects.

Latest Updates

Investment strategies

Why I dislike dividend stocks

If you need income then buying dividend stocks makes perfect sense. But if you don’t then it makes little sense because it’s likely to limit building real wealth. Here’s what you should do instead.

Superannuation

Meg on SMSFs: Indexation of Division 296 tax isn't enough

Labor is reviewing the $3 million super tax's most contentious aspects: lack of indexation and the tax on unrealised gains. Those fighting for change shouldn’t just settle for indexation of the threshold.

Shares

Will ASX dividends rise over the next 12 months?

Market forecasts for ASX dividend yields are at a 30-year low amid fears about the economy and the capacity for banks and resource companies to pay higher dividends. This pessimism seems overdone.

Shares

Expensive market valuations may make sense

World share markets seem toppy at first glance, though digging deeper reveals important nuances. While the top 2% of stocks are pricey, they're also growing faster, and the remaining 98% are inexpensive versus history.

Fixed interest

The end of the strong US dollar cycle

The US dollar’s overvaluation, weaker fundamentals, and crowded positioning point to further downside. Diversifying into non-US equities and emerging market debt may offer opportunities for global investors.

Investment strategies

Today’s case for floating rate notes

Market volatility and uncertainty in 2025 prompt the need for a diversified portfolio. Floating Rate Notes offer stability, income, and protection against interest rate risks, making them a valuable investment option.

Strategy

Breaking down recent footy finals by the numbers

In a first, 2025 saw AFL and NRL minor premiers both go out in straight sets. AFL data suggests the pre-finals bye is weakening the stranglehold of top-4 sides more than ever before.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
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. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. 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.