Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 369

Australian house prices: Part 1, how worried should we be?

The current housing figures have been remarkably resilient given the circumstances, as house prices in Australia have fallen by 1.6% nationally in the three months to end July, according to CoreLogic. This is occurring through some of the worst economic conditions the country has seen in the past 70 years. Most forecasts suggest there will be more declines but of a magnitude that is similar to 2019.

This article focuses on the short-term indicators to help determine if this relatively benign outlook should hold. The following article, Part 2, then examines the longer-term drivers.

Chart 1: Australian house price index

Source: Bloomberg, CoreLogic, Nikko AM

Short-term forward indicators: the usual suspects

Three key indicators are particularly useful for the short-term outlook:

1. Auction clearance rates

When the Australian economy was in total lockdown during April 2020, auction clearance rates plummeted. They have since recovered into the mid-60% range, however weak outcomes persist in Victoria. From a historical perspective, this would imply house price outcomes are slightly better than the declines seen in 2010 or 2018, making prices flat when compared to this time last year. To end up flat year-on-year over the next few months, we would need to see a 5% fall in prices to offset the late 2019 strength.

Chart 2: Auction clearance rates and house prices

Source: Bloomberg, Nikko AM

2. Mortgage finance

The most recent data point for mortgage finance is from May 2020, which was highly affected by the lockdown, but nevertheless showed some of the largest declines in finance of the past 20 years. This paints a bleaker picture than the auction clearance rates, with prices pointing slightly negative year-on-year. Mortgage finance has fallen from its lofty levels during late 2019 and we expect this should weigh on prices, potentially in the 5 to 10% range over the next few months.

Chart 3: Mortgage finance and house prices

Source: Bloomberg, Nikko AM

3. Building permits for new homes

This indicator typically moves in the same manner as house prices. The most recent figures for building permits show there’s been a quick decline in the intention to build, which signifies house price weakness in the near term as developers expect sales will be harder to achieve.

Chart 4: Building permits, new houses and house prices

Source: Bloomberg, Nikko AM

In the short term, all three indicators are pointing to the same outcome: house price declines of approximately 5% to 10%. When answering our original question - “How concerned should we be?” - these indicators tell us that we should be at least mildly concerned.

Yet this outlook only reflects what is already known and observable, providing only a 3- to 6-month outlook without making much reference to what could be in store in 12 months’ time. 

So we must also think about how these indicators could move in the bigger picture environment, and whether they generate greater concern. The longer-term analysis is included in the next article.


Chris Rands is Portfolio Manager, Fixed Income at Nikko AM Limited. The information contained in this material is of a general nature only and does not constitute personal advice, nor does it constitute an offer of any financial product. Figures, charts, opinions and other data, including statistics, in this material are current at the date of writing, unless stated otherwise. This is not a recommendation in relation to any named securities or sectors and no warranty or guarantee is provided.

The full paper can be viewed here.


John Gilbert
August 09, 2020

The auction clearance rate has less utility now than in recent years. Across the country, in the last week, there have been around 350 auction sales out of 500 planned auctions (a 70% clearance rate); but there have been 4100 private sales.

That means that only 8% of sales are now by auction (NSW 14%) and sounds to me like a shift from a transparent, primarily auction-based market to a less transparent private sales approach. You can't tell much about the private sales clearance numbers without also tracking time on the market. Certainly, I'm aware of lower north shore Sydney houses that have been on the market for would be very useful to segment the private sales market by price and property type to look at the time on market for each segment.

August 09, 2020

The property market in the west is cheap already. With low rental vacancies and cheap
Money some hope seemed eminent to a move forward in price. The government incentives to build will boost housing supply and I wonder what impact this will have on the normal market? Great for developers who quickly absorbed the incentives by removing all of their “extras”. The east coast property market has been in a bubble
And acting irrationally and speculatively for some time. Two bedroom
Apartments on top off kebab shops in western sydney shouldn’t cost $800,000.

August 06, 2020

A lot of data and actual sales figure is masked or hidden in detail. It is quite clear that somethng is not quite right or it defies all logic about the housing data or the resilience shown despite all leading indicators suggesting a grave and negative outlook. Employment, migration, business sentiment, housing debt, etc all looks bad.

August 06, 2020

How worried should we be? Very. All those people who cannot afford their mortgages flooding the market with sales, but more at the 'up to $1 million' end of the market. Top end more resilient.


Leave a Comment:



Australian house prices: Part 2, the bigger picture

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

History repeats on housing, but how long will this last?


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.

The sorry saga of housing affordability and ownership

It is hard to think of any area of widespread public concern where the same policies have been pursued for so long, in the face of such incontrovertible evidence that they have failed to achieve their objectives.

Latest Updates


$1 billion and counting: how consultants maximise fees

Despite cutbacks in public service staff, we are spending over a billion dollars a year with five consulting firms. There is little public scrutiny on the value for money. How do consultants decide what to charge?

Investment strategies

Two strong themes and companies that will benefit

There are reason to believe inflation will stay under control, and although we may see a slowing in the global economy, two companies will benefit from the themes of 'Stable Compounders' and 'Structural Winners'.

Financial planning

Reducing the $5,300 upfront cost of financial advice

Many financial advisers have left the industry because it costs more to produce advice than is charged as an up-front fee. Advisers are valued by those who use them while the unadvised don’t see the need to pay.

Investment strategies

Slowing global trade not the threat investors fear

Investors ask whether global supply chains were stretched too far and too complex, and following COVID, is globalisation dead? New research suggests the impact on investment returns will not be as great as feared.


Many people misunderstand what life expectancy means

Life expectancy numbers are often interpreted as the likely maximum age of a person but that is incorrect. Here are three reasons why the odds are in favor of people outliving life expectancy estimates.

Investment strategies

Wealth doesn’t equal wisdom for 'sophisticated' investors

'Sophisticated investors' can be offered securities without the usual disclosure requirements given to everyday investors, but far more people now qualify than was ever intended. Many are far from sophisticated.

Investment strategies

Is the golden era for active fund managers ending?

Most active fund managers are the beneficiaries of a confluence of favourable events. As future strong returns look challenging, passive is rising and new investors do their own thing, a golden age may be closing.



© 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.