Despite sentiment falling in the property market recently as the RBA continues to hike interest rates, it’s worth remembering that property is a long-term game.
Over the past few months, values have fallen across the country and that has seen buyer demand decline. That said, both values and sales volumes are coming off a record-setting period, so it’s not surprising that we have seen activity slow down.
Interestingly, new data from CoreLogic shows us just how well property has performed as an asset class over the last three decades, which is important to think about in the current environment. While housing values move through cycles of growth as well as declines, the long-term trend is undeniably upwards. Nationally, dwelling values have increased 382% over the past 30 years, or in annual compounding terms, rising by 5.4% on average since July 1992 according to CoreLogic.
Over that 30-year period, we have seen six distinct cycles of growth and an equal number of cycles of decline (including the current downswing) on a national level. Each of the upswings and downturns has been characterised by different environments and catalysts of change such as taxation policy, monetary policy decisions, economic shocks, fiscal stimulus and broader economic conditions.
Across each of the past three decades, it was the 1992-2002 period that provided the largest capital gains, with CoreLogic’s national Home Value Index (HVI) rising by 77%. The middle decade (2002-2012) saw the national HVI rise by 59%, while the most recent decade has seen national dwelling values increase by 72%.
Over the past 30 years, Sydney’s property values have increased 449% (5.8% per annum), with the 10 years ending July 2022 recording the highest rate of growth over the past three decades. The 30-year growth rate was the second highest of any capital city.
The best performing region of Sydney has been houses within Marrickville-Sydenham–Petersham, where values have risen by 660.1%, equating to an approximate dollar value gain of $1,539,280. Followed closely by the Eastern Suburbs.
Meanwhile, Melbourne dwelling values are up 459% (5.9% per annum) over the past 30 years, the highest long-term growth rate of any capital city. The earliest decade (1992-2002) recorded the strongest housing market conditions, with dwelling values up 95%, compared with a 69% rise through both the middle decade and the most recent decade.
While, Brisbane home values increased by 340% (5.1% per annum) over the past 30 years, with the highest rate of growth recorded through the middle decade (2002-2012) where housing values were up 74%. In comparison, dwelling values increased by 49% between 1992 and 2002, and by 71% over the most recent decade.
According to CoreLogic, the declining trend we are seeing at the moment will eventually level out, typically followed by a period of stability and then further growth.
Analysing each downturn across the combined capitals from the early 1980s shows the longest period of falling values has been 21 months, recorded over the most recent down phase (2017-2019) and also through the 1989-91 downturn.
So, while we are hearing some degree of negativity around what’s happening with property prices, when we put the current price movements in context, we can see that over a long period of time values typically move in one direction.
This cyclicality is also exhibited by other growth asset classes which one typically associates with equities, and there has been a material difference between international and Australian domestic shares over the latest prolonged upward cycle since the GFC in 2008.
The other important issue to remember is that the income streams derived from these assets need to be considered when you look at the overall performance over the longer timeframe. As with equities, Australian residential property rental income yields can contribute significantly to the overall growth of these investments as rents tend to increase, by at least the level of CPI over the long term.
Currently, we are seeing some very strong rental growth on a national basis, although there are some very marked differences between regions and dwelling types. I think the most important factor to bear in mind is that property investments are often leveraged so that the yield that they produce can be the difference between owners being able to comfortably retain their assets for the long term, or being forced to sell them along the way.