Housing market reaches bottom of the cycle… maybe.

The Australian housing market peaked during October 2010 and since that time dwelling values have fallen by 5.9% (7.4% to the May 2012 trough) across the combined capital cities index based on the RP Data-Rismark Home Value Index to the end of July.  Over the same twenty month ‘post peak’ time frame, the US housing market had recorded a 10.2% fall, UK prices were down 22.5% and New Zealand had seen a 9.1% fall.

Tracking the path of decline from the market peak paints an interesting picture and highlights the differences in the speed of decline and path of recovery across each of these markets.  After home prices peaked in the UK (August 2007) the rate of correction was much more rapid than what was experienced in the United States where the market peaked much earlier (April 2006).

Based on the Halifax index the market reached its trough 20 months after the market peak.  Values were down 22.5% overall and fell at the compounding annual rate of 1.3%/month.  The UK market staged a short lived recovery over the second half of 2009 into early 2010, however prices have remained fairly stable since then and as at June 2012 were 19.4% lower than the 2007 peak.

The US housing market, on the other hand has seen a more gradual and prolonged decline.  House prices started slipping backwards way back in April of 2006 setting off a chain of events that ended up throwing the world into absolute financial chaos.  Based on the CoreLogic House Price Index, US house prices fell by 30.8% (1.0%/month) over 35 months before the decline trend showed some comparative stability.   The next 35 months saw US home prices fall by 0.6%/month on average reaching the lowest point on record over the month of February 2012, a full 33.7% lower than the market peak.

The trend across New Zealand has been similar to that of the UK in the sense that the market reached the bottom of the cycle 19 months after the market peak, down 7.4% from peak (October 2007) to trough (April 2009), based on the PropertyIQ House Price Index.  Since that time prices have risen a further 8.4%.

The local ‘peak to trough’ trend line is of course much shorter.  The Australian market peaked in October 2010 and if we continue to see values remain either stable or increase, the bottom of the market would have been May 2012 which is 19 months after the market peak.  That’s a similar time frame to what was experienced in both the UK (20 months) and New Zealand (18 months).

Potentially June 2012 will be the signpost that pointed to a market stabilisation with the RP Data-Rismark index recording a 1% rise in home values over the month of June and 0.6% rise in July.  June also marked the month where a variety of other indicators showed a positive result; retail sales, dwelling approvals and housing finance commitments all showed better than expected outcomes.  The labour force data released yesterday showed unemployment remained stable at 5.2%, interest rates are low and potentially might move lower and consumer confidence has shown a mild improvement and is expected to move higher.

Other market metrics are also pointing in the right direction.  Homes are taking a shorter number of days to sell, vendors are discounting their prices less and the auction clearance rate has been averaging above 50% across 2012.

Of course it’s early days yet – another positive Home Value index result for August should firm up the notion that the market exited the correction and his moving into recovery.  Based on the daily RP Data-Rismark index movements over the first ten days of August (up 0.2%) August is on track for another rise.

About Tim Lawless

Tim heads up the RP Data research and analytics team, analysing real estate markets, demographics and economic trends across Australia

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4 Responses to Housing market reaches bottom of the cycle… maybe.

  1. David Podmore August 29, 2012 at 11:22 pm #

    Comments: Fot the attention of Tim Lawless Good morning Tim In one of your recent articles you talk of ” have we reached the bottom of the cycle ?
    Australia v US, UK, NZ etc”
    When you say properties have fallen in value don’t you mean the median price of recorded sales has fallen in value?
    Look forward to your reply
    Regards David

    • Tim Lawless August 30, 2012 at 8:55 am #

      Hi David, the terminology varies based on the methodology, so maybe I should have been clearer. Thanks for bringing this point up though. Generally when we are referring to median price index we will talk about price shifts, however when we are using a hedonic regression index (such as the RP Data-Rismark Home Value Index or the Halifax Index used in the UK) it is appropriate to refer to value changes.

      The RP Data-Rismark Index aims to measure true value shifts in the market place by comparing how the values of the entire portfolio of housing stock have changed from period to period. Essentially, using computer algorithms, we are estimating the value of every dwelling around the country on a daily basis based on the attributes of those properties and the sales data that is flowing through.

      If you are interested in learning more about the hedonic method that powers the Home Value Index you can check out the white papers here: http://www.rpdata.com/research/rp_data-rismark_home_value_index_methodology.html

      We have also written a few blogs on the subject with the most recent here: http://blog.corelogic.com.au/2012/07/the-rp-data-rismark-home-value-index-corrections-and-qa/

      Cheers,Tim

  2. Michael Sier October 11, 2013 at 2:23 pm #

    It would be great to get an update on this 14 months down the track Tim?

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