Australian house prices rose strongly relative to incomes and rents during the late 1990s and early 2000s; however, from 2003 to 2012 the price to income ratio and price to rent ratio have both remained fairly steady, with house prices tracking income and rent growth during that decade.
Australian house prices have been steadily rising year on year as a growing population lifts demand for housing while supply has not kept up with the requirement. A decline in interest rates over the last two decades has also boosted the number of buyers in the market.
The 2000s United States housing bubble was a real-estate bubble affecting over half of the U.S. states. It was the impetus for the subprime mortgage crisis. Housing prices peaked in early 2006, started to decline in 2006 and 2007, and reached new lows in 2011.
Australian property values experienced a downturn in 2022 and prices continue to fall—but predictions of the overall peak-to-trough price decline tend to vary between 15-25%. Read more about whether the Australian property market is going to crash.
In 1970, you could buy a house in Sydney for $18,700, and in 1980, the average house price was around $76,500. By 1990, the average had more than doubled to $184,600. And in 2000, you needed about $312,000 to purchase a dwelling in Sydney, with the number rising to $575,900 in 2010.
The data provided exclusively to The Sunday Telegraph showed the median house price would be $1.92m in 2027 and the median unit price would be $1.02m. Sydney prices would also be nearly triple those in Perth, Adelaide and Darwin if the current growth trajectory continued.
While home buyers in the 80s and early 90s were hit with punishingly high interest rates, house prices were much lower. Buyers back then had to borrow less, save smaller deposits and spend less of their income on housing.
The Australian property market has been a topic of much speculation and concern in recent years. Between 2020 and 2021, the market witnessed a significant upswing, with prices skyrocketing in the wake of the COVID-19 pandemic.
Property Prices Could Potentially Surge in 2024
Evans and senior economist Matthew Hassan in a market update. "Prices are now expected to increase by 5% in 2024, revised up from 2%." Westpac predicts that by 2024, house prices will rise by 5% in both Sydney and Melbourne, 6% in Brisbane, and 8% in Perth.
Australia's housing market is facing some headwinds, but a crash is unlikely due to strong underlying economic fundamentals.
The stock market and housing market crashes of 2008 trace their origins to the unprecedented growth of the subprime mortgage market that began in 1999. Fannie Mae and Freddie Mac made home loans accessible to borrowers who had low credit scores and a higher risk of defaulting on loans.
In 2022, Toronto, Canada, was the housing market most at risk with a real estate bubble index score of 2.24. Frankfurt and Zurich followed close behind with 2.21 and 1.81, respectively. Any market with an index score of 1.5 or higher was deemed to be a bubble risk zone.
Toronto has been named by UBS the number one real estate housing bubble in the world.
In the three years to the end of 2021, median house prices surged by 43% in Sydney, Brisbane, and Canberra, 41% in Melbourne, and 62% in Hobart. The boom in house prices ended with the rate hikes in 2022. Even after price falls of 10% in 2022, nominal prices remain well above where they were before the boom began.
Supply and demand imbalance
One of the primary reasons for high house prices in Australia is the imbalance between supply and demand. Housing supply is under ongoing strain due to an increasing population and a limited land supply, particularly in large cities like Melbourne and Sydney.
As of February 2023, more than 640,000 Australian households are under housing stress or homeless. It is forecasted that this figure will grow to almost one million by 2041. According to a recent report by SGS Economics and Planning, 42% of all low-income households are paying more than 30% of their income on housing.
The downturn in the global housing market is set to continue in 2023, with most Australian cities expected to fall by double digits in what is shaping up to be the deepest property correction in more than 30 years. Few people are willing to buy or sell in a falling market, and stock is hard to find.
The average annual growth rate for well-located capital city properties is about 7%, which means that Australia's median dwelling price should be around $1.1 million in 2030. But some properties will outperform others by 50-100% in terms of capital growth, so take these house price predictions with a big pinch of salt.
RLB forecasts that house-building prices this year will rise by as little as 4 per cent in Sydney to as much as 7.5 per cent on the Gold Coast. But the rate of price rises has halved in some cities as supply chain pressures subside and material cost escalation eases.
"Property price falls are likely to continue and accelerate in 2023," report author Cameron Kusher said, blaming the cooling market on the rising cost of borrowing and its associated drain on household budgets. Australia's most expensive cities will likely see the largest price falls, he said.
However, rising interest rates will increase borrowing costs. The median house price increased by 14% to $1,019,000 in June 2022. In the next 18 months, a 9% fall in the median house price is expected with median house price predicted to rise to $996,000 by June 2025.
“The unique set of circumstances we're seeing this year may present a prime opportunity for those looking to invest in the property market,” Mr Khursigara told Your Investment Property magazine. “Both Federal and State governments are buoyant with the estimates of new migrant arrivals in 2023.
In 2022, the average age of first-time homebuyers was 36, according to the National Association of Realtors (NAR). This is up from 33 in 2021. A more notable stat, however, is that only 26% of homebuyers in 2022 were first-time homebuyers — the lowest percentage since the NAR started tracking the metric.
Prices could fall further
If you buy in a recession, there is always the risk that prices could fall even further. That said, Australian property prices usually tend to rise in the long run, especially in capital cities. So if you're prepared to spend some time owning your property, you're likely to come out ahead.
According to a Macquarie University paper in 2004, the average house price in Sydney in 1989 was $170,850.