Property Boom and Price Drops in Australia from 2003 to 2021 (Ep.111)

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In this week’s episode, Dave, Cate and Pete take you through:

  1. Booms and busts. The trio discuss the booms and busts from the years of 2003 to 2020. For each capital city and nationally, they cover the top performing 3 years and also the bottom 3 years during this time. Check out our show notes for a special excel visual with all of the key data.
  2. 2003 the star performer. 2003 was the best year nationally and made it in the top 3 for each capital city, except Darwin. Although not in the top 3 for Darwin, this capital city still clocked double digit growth for the year. Nationally, price growth for 2003 reached a whopping 19.3%. The trio explore the various reasons why 2003 recorded top results, from availability of finance, movements of baby boomers and first time buyers, the advent of mortgage brokers, introduction of government stimulus and property price stagnation in the years leading up to this boom.
  3. 2018 the worst year. Nationally, 2018 was the worst year during this period, recording home value declines of 5.5%. Interestingly, this was also the worst year for Melbourne and Sydney, and third worst year for Brisbane, but not for any other capital city. This speaks to the weight of the Sydney and Melbourne market, and their influence on national prices. The trio were happy to blame credit policy as one of the key ingredients for this particular year’s woes in the residential housing market.
  4. The astounding story of Hobart in 2003. Amazingly, Hobart exhibited median house price growth of 55.3% in 2003. How can that be? The trio discuss the pre-2003 environment on mainland Australia which saw Hobart quickly become a magnet for investors and retirees. As the population of Hobart is so low, any peaks or troughs in interest can have a great impact on property values.
  5. Resource markets. The early noughties saw the resources sector start to boom, which correlates to double digit increases for Perth from 2003 to 2006 and Darwin to 2007. These cities are greatly impacted by the health of their leading industries, which meant that unfortunately, prices have decreased since, and are yet to reach their previous peak.
  6. Adelaide going slow and steady. As a capital city, Adelaide doesn’t have major economic drivers like resources, which can do wonders for property. It also lacks the overseas interest that Melbourne and Sydney are fortunate to have. Furthermore, if a property investor decides to purchase outside of their own capital city, they generally look to Queensland. The result is that price fluctuations in Adelaide are less severe, and there are only two years where Adelaide has experienced double digit growth. However, in its third worst year, Adelaide still experienced positive growth.
  7. The property market is like a garden. Just like a garden, there are many factors which determine the health and prosperity of the property market – location, sun, soil, water, plants, environment and the bugs! The property market is multifaceted market, and a micro version of the broader economy with so many inputs and outputs that determine the outcomes. The trio discuss the difficulties in being able to point to one factor which ultimately drives price increases and declines. It’s important to remember that the market is not driven by investors, but majority owner occupiers, who are driven by personal factors and emotion.
  8. The impact of government policy. Arguably, the politicians are the bugs in the garden – which either pollinate to promote growth or eat away at the crop. One factor which always has a hand in influencing price movements is government policy and stimulus. The trio discuss the various initiatives which led towards the booms and busts over this period. From first home owner grants, economic stimulus, imposts of foreign investors, macro prudential regulation, restrictions on greenfield developments to encourage ‘urban densification’, schemes for first time buyers and builder, and financial deregulation and credit tightening. The national busts of 2008, 2011 and 2018 which resulted in value decline of 4.1% to 5.5%, all had an element of government policy which influenced the market.
  9. Booms outweigh the busts. What’s evident from looking at the data, is that the magnitude of booms are much bigger than the magnitude of busts. What we see is that booms are often coupled with double digit growth, while busts produce single digit declines. Over the period of 2003 to 2020, the best year for each capital city except two was in excess of 20% increase.
  10. National busts – 2008, 2011, 2018. These years were the worst for property price nationally, resulting in value decline of 4.1% to 5.5%. The trio explore the reasons behind these busts.
  11. Will the 2021 boom surpass the 2003 boom? The trio discuss the likelihood of performance for 2021, as June results show annual price growth of 13.5% nationally. Whether we will reach the 2003 level of 19.3% is likely to depend on the current and possible future lockdowns in Melbourne and Sydney.

Download the data here


Show notes

  • Booms and busts – what the property market has done from 2003 to 2020. 
  • Resident Property Professor has produced a spread sheet with annual price movements for each capital city. 
  • 2003 – the end of the last national boom, we’re currently going through another one. 
  • 2003 was the best year nationally and every capital city (except for Darwin, had a really good year). 
  • 2018 – Sydney and Melbourne had their worst year, Brisbane also had a bad year, but not the worst. But Nationally, it was the worst year, because of the weight of Sydney and Melbourne. 
  • Hobart in 2003 – growth of 55.3%  
  • 2001 and 2002 were great years for most of the nation – for most, they had double digit growth in each of those years.  
  • Things got too expensive on the mainland, and Hobart prices were still down, so there was lots of interest in Hobart from investors and those looking to retire – affordability 
  • Hobart and Tasmania – there is more volatility in terms of the price movement – it has some obvious runs and more periods of stagnation.  
  • One of the significant detractors is the limitation due to jobs. 
  • Australian’s becoming more confident in property as an investment vehicle. Early years of mortgage broking – the phenomenon of buyer’s agents only just started beginning.  
  • Because the population is so low, it must have had a bigger impact. 
  • 2003 has been our best year ever – what happened? 
  • Nationally at 19.3%, this year we could go further – depending on the lockdowns in Melbourne and Sydney, that could suppress property prices. 
  • Availability of finance – prevalence of new products (no docs, low docs) was astounding. Low doc loan you didn’t have to provide any proof of income, you just stated what it is. No doc – you didn’t have to provide anything, as long as the LVR was low enough.  
  • NINJA loans in the US – No income no jobs, as long as you have an asset, you can get a loan.  
  • Leading up to this, there was a recession in the 1990’s, then late 90’s there was a CGT discount for investors. But at the same time there was going to be a GST tax – so really the property market did nothing from mid 99 to 2000. 
  • No activity in property market because people worried about GST – $7,000 FHBG – then some grants increased it again.  
  • Look at what happened in 2020 – Severe but short recession due to covid, government incentives and now we’re off again. 
  • 2001-2003 were terrific years – culminating in Hobart having a huge year due to affordability in mainland in Australia.  
  • Early naughties is when resources started – this is when iron ore started to go off, and other resources – Perth 2003-to 2006 – double digit increase, finishing with 42% in 2006. Darwin 5 years in double digit growth. Unfortunately for those cities, they’ve dropped because resources took a slump.  
  • Adelaide doesn’t have those major factors like resources – which can do wonders for property or hurt property. And it’s not like Sydney or Melbourne that have interest from overseas investors. Brisbane, if an investor will not buy in their own state, they’ll buy in Queensland.  
  • Only two years where Adelaide had double digit growth. But in it’s third worst year, it still had positive growth. So, there is fluctuation and less of a ‘bust’ when it does happen.  
  • Population growth – Adelaide has had a little bit of its share of bad news in jobs arena, when car manufacturing plant was closed down. Adelaide is not like a water in a tap, it’s more like a garden – soil, sun, plant itself – there are so many factors which could affect the performance.  
  • It’s hard to say that because this happened – x will happen. Although Government stimulus has consistently shown to impact the property market. Shown in 2001, 2002 and 2003, after the GFC and now.  
  • What we have right now that we didn’t have during those strong boom years, is interest rates are the lowest they’ve ever been, which we haven’t seen the end of that.  
  • Don’t think this boom will be as good as 2001, 2002 and 2003. 
  • Also have to understand the psychology of the consumer – it is dominated by owners, not investors – it’s a home, so you have to factor in consumer confidence into the equation.  
  • 2003 – greatest supply of sale of properties on record – it was the last year the baby boomers needed to upgrade their homes. That was a big catalyst for growth in values. Made it easier for first time buyers, who had great stimulus, to go buy the properties baby boomers moved out of. A lot of supply 
  • This time, there is a lack of supply and that’s why property values are going up so much.  
  • Regionals – what we know is that covid has exacerbated that, as people escaped to the country.  
  • Magnitude of the booms are much bigger than the magnitude of a bust.  
  • Looking at Sydney – best year was 16%, worst – 8% 
  • Melbourne – 23%, worst –7.6 
  • Bris – 39%, worst –5% 
  • Booms have double digit growth, busts have single digit declines.  
  • The best year of every capital city except for two was in excess of 20%. 
  • In 18 years from 84 to 85 to 2003 – average floor area of new houses increased by 50% 
  • We are building significantly bigger houses. During covid people have invested in increasing footprint of their house. We are above the US for average size of houses.  
  • Not just building size that improves, but also the building quality. Today, you must have the car port, the curtains and everything else.  
  • Nationally, property prices are greatly affected by what the federal government does 
  • FHOG, back in 2008 there was other stimulus (every school was going to get a hall, creates more employment and more people in a place to buy property). 
  • When there is an impost for overseas investors – that slowed down the property market – and that’s exactly the reason why they brought it in – 2011.  
  • State based offerings – anything that SA has done that has delivered a particular result. Unlike FHOG of the previous century 1980 and 1990 – they were for all property, now they are only for new property. Generally, 2% of the overall market – they may not have as big of an impact today, than they did previously.  
  • In the 1990’s is when we had evolution of mortgage brokers – they could have brokers check out 20 or 30 different lenders, which encourage them to buy. They play a bigger part these days.  
  • National busts 
  • 2008 – -4.1% GFC, was very scary and people didn’t know what to expect. Lenders clamping down, cutting maximum LVR and no doc/low doc loans taken off the table over-night.  
  • 2011 – -4.4% Stimulus wound up – GFC money was spent by then. Every capital city had negative property prices this year.  
  • 2018 – -5.5% largely driven by macroprudential regulation, banking royal commission and consumer sentiment 
  • 2020 – Covid – positive growth of 4.3% 
  • Don’t think our boom will be as great as in 2003 
  • Impact of interest rates on property prices – they do play a major role in the past, but maybe not the case anymore – we also had our highest interest rates in these years.  
  • Consumer sentiment – what ever the different components of the environment come together, the final one that shows or confirms the blossoming, is consumer sentiment. What is the correlation here.  
  • Bugs that can do some damage as well – the politicians? Higher interest rates for investors v owner occupiers, borrowing became a forensic exercise.  
  • The nature of the market 
  • The market is multifaceted, you can’t hang your hat on one thing to say if x happens, then y will definitely happen. 
  • Micro version of the broader economy, so many inputs and outputs.  

Gold Nuggets

Cate Bakos – The Property Buyer’s Golden nugget: Two things from this episode have come to light. 1 – Long-term game, if you’re trying to time markets, it can be really difficult. 2- The other thing is about spreading risk, diversification is always something that can aid a property investor. If you have different eggs in different baskets, it can help you in the long-run.

Peter Koulizos – The Property Professor’s Golden nugget: If you’re going to be buying investment property, you need to talk to a number of different professionals as there are a lot of factors which can impact – talk to buyers advocate, strategic mortgage broker and accountant (land tax), it has a big impact on investors and can impact behaviour.

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