Why property prices will go up, not down.
In over 25 years of working in the property industry, I have lost count over how many times I have heard people telling me that the reason they’re not investing in property, or entering the property market, is because ‘they’re waiting for prices to come down’.
This is an excuse of course. It’s an over-used cover for procrastination. But, for the purpose of demonstration, let’s look at how property prices in our major cities have performed over a 25-year period to 2018.
House values over 25 years
| Median value 2018 | Annual percentage change, 25 yrs | Average annual dollar value change, 25 yrs | |
| National | $571,441 | 6.8% | $18,397 |
| Adelaide | $462,049 | 5.9% | $14,027 |
| Brisbane | $535,292 | 5.9% | $16,290 |
| Canberra | $678,765 | 6% | $20,848 |
| Darwin | $496,498 | 6.3% | $17,937 |
| Greater Hobart | $452,935 | 6.5% | $14,393 |
| Melbourne | $824,955 | 8.1% | $28,325 |
| Perth | $487,992 | 6.7% | $15,679 |
| Sydney | $1,026,638 | 7.6% | $34,426 |
Unit values over 25 years
| Median value 2018 | Annual percentage change, 25 yrs | Average annual dollar value change, 25 yrs | |
| National | $515,610 | 5.9% | $15,671 |
| Adelaide | $328,274 | 5.2% | $9,462 |
| Brisbane | $384,970 | 4.5% | $10,255 |
| Canberra | $435,072 | 4.7% | $11,929 |
| Darwin | $334,436 | 4.1% | $9,424 |
| Greater Hobart | $353,292 | 5.5% | $10,402 |
| Melbourne | $574,003 | 6.6% | $18,331 |
| Perth | $400,717 | 6% | $12,255 |
| Sydney | $753,304 | 6.3% | $23,594 |
Source – CoreLogic
*Median values are based on estimated house and unit values as at April 2018 and April 1993, except for Darwin where the data series is shorter, commencing from 1999
The ‘doubling’ effect over a 10-year cycle requires a compounding growth rate of 8%.
A key driver of property growth is population growth – people will always need somewhere to live.
With population growth comes investment in infrastructure, employment, medical, education, etc.
Rising construction costs resulting in fewer homes being built will inevitably lead to price increases. Initially for new builds, but eventually older homes will also be affected as people who may have been hoping to build a new home are forced to buy something already established.
Housing prices 25 years into the future
What if we were to take these same increases and project them into the future? The National median house value in 2047 would be $3.85 million and units $2.71million. Melbourne’s median house value would be $7.89 million in 2047 and units $3.66 million.
Using historical performance is not always the best way to forecast future expectations, it is nevertheless a useful reference to help understand where values could end up.
House values in 25 years
| Median value 2047 | Annual percentage change, 25 yrs | Average annual dollar value change, 25 yrs | |
| National | $3,850,683 | 6.8% | $124,289 |
| Adelaide | $2,435,964 | 5.9% | $74,193 |
| Brisbane | $2,822,108 | 5.9% | $85,954 |
| Canberra | $3,677,812 | 6% | $25%,835 |
| Darwin | $2,919,995 | 6.3% | $91,442 |
| Greater Hobart | $2,813,031 | 6.5% | $89,214 |
| Melbourne | $7,895,423 | 8.1% | $270,757 |
| Perth | $3,200,228 | 6.7% | $102,709 |
| Sydney | $8,589,605 | 7.6% | $288,538 |
Unit values in 25 years
| Median value 2047 | Annual percentage change, 25 yrs | Average annual dollar value change, 25 yrs | |
| National | $2,718,342 | 5.9% | $151,447 |
| Adelaide | $1,427,884 | 5.2% | $70,580 |
| Brisbane | $1,379,747 | 4.5% | $59,415 |
| Canberra | $1,648,219 | 4.7% | $73,989 |
| Darwin | $1,072,468 | 4.1% | $42,239 |
| Greater Hobart | $1,668,995 | 5.5% | $87,009 |
| Melbourne | $3,663,305 | 6.6% | $226,809 |
| Perth | $2,171,240 | 6% | $122,900 |
| Sydney | $4,430,318 | 6.3% | $262,568 |
*Source – CoreLogic
**Median values are based extrapolated based on using the same annual compounding growth as achieved in the 25 years to 2018.
When have property prices gone backwards?
Many people confuse a slowdown in growth with falling prices, and the media doesn’t help. When the Global Financial Crisis hit, the doomsayers were predicting a 20% fall in prices. The median property value dropped 8.5% during the GFC however picked up significantly shortly thereafter as the economy strengthened and the world went back to some kind of normal.
From mid 2020 to April 2022, prices had jumped 28.6% (national average) whilst regional Australia surged up to 41.1% as smaller towns experienced an influx of city-dwellers looking for a better lifestyle.
CoreLogic figures in July this year show an average 2% for the quarter, and an average 8% annual growth Nationally. Sydney and Melbourne showed a 1.6% and 0.3% median annual growth respectively. Whilst this indicates a sharp downturn in property values, it’s seen as more of a normalisation than a significant drop. With spring and summer traditionally ‘buying’ seasons, and a shortage in new home builds, it’s difficult not to see property prices pushing up again, even with the ‘normalisation’ of interest rates.
