With the release of March 2018 quarter CPI data it shows that in inflation adjusted terms, dwelling values are now lower than they were at their peak in most capital cities.

According to the Australian Bureau of Statistics (ABS), the consumer price index (CPI), which measures inflation, increased by 0.4% over the March 2018 quarter to be 1.9% higher year-on-year.  With the release of this data, it is also possible to look at inflation-adjusted or real changes in dwelling values across the capital cities.  When looking at these figures, the inflation adjustment means that value growth is lower.

Nationally, dwelling values fell by -1.0% and were -0.7% lower over the past 12 months.  Hobart was the only capital city in which real values increased over the quarter (+3.0%) with Sydney recording the largest quarterly fall (-2.2%).  Over the past twelve months, only Melbourne (+3.4%), Hobart (+10.9%) and Canberra (+1.0%) have seen dwelling values outpace inflation.  The largest decline over the year was recorded in Darwin (-9.3%) followed by Perth (-4.3%) and Sydney (-4.0%).

Over the past decade, only Sydney (+43.3%) Melbourne (+38.7%) and Hobart (+6.4%) have recorded ‘real’ growth in dwelling values.  These figures really highlight how narrow value growth has been in the national housing market has been over the past decade.  It also highlights that low mortgage rates alone have not been the key driver of value growth.  Mortgage rates are the same in Sydney as they are in Perth yet the former has recorded real growth of 43.3% while the latter has seen values fall by -25.0%.

With dwelling values having fallen over recent months, all capital cities, except Hobart, now have real values which sit below their previous peak.

Nationally, values are -2.0% lower than their June 2017 peak and across the combined capital cities values are a slightly greater -2.5% lower.  Let’s take a look at how dwelling values have tracked in inflation adjusted terms across each capital city.

Sydney – values are 5.3% lower than their June 2017 peak.

Melbourne – after peaking in December 2017, values are currently -0.9% lower.

Brisbane – values peaked back in March 2008 and are currently -12.5% lower.

Adelaide – values currently sit -7.4% below their June 2010 peak.

Perth – the city has seen values fall by -28.5% from their peak in December 2006.

Hobart – with values increasing a further 10.9% over the past year, it is the only city where real dwelling values are currently at their peak.

Darwin – real dwelling values peaked in March 2013 and have since fallen by -28.2%.

Canberra – dwelling values are -6.8% lower than their June 2010 peak.

Although the rate of inflation is quite slow and remains below the Reserve Bank’s target range of 2% to 3% annually, value growth is now broadly slower and is expected to remain that way over the coming quarters.  As a result, when looking at inflation-adjusted dwelling values the expectation is that they will continue to fall over the coming quarters.  What this means is that as the cost of other items increases and inflation rises, relatively speaking, the cost of housing will reduce.  This has been occurring in most capital cities for a number of years but is a relatively recent development in Sydney and Melbourne.  The flow-on effect of value falls remains to be seen but it could result in less expenditure elsewhere across the economy, particularly in Sydney and Melbourne which have had strong retail demand over recent years due to the wealth-effect of increasing dwelling values.

Cameron Kusher
Senior Research Analyst, CoreLogic

Cameron specialises in primary and secondary data analysis, property market commentary and consultancy. Cameron has a thorough understanding of the fundamentals such as demographics, trends, economics and spatial analysis and is a regular keynote speaker for property-related groups, regulated industry bodies, corporations and the government sectors. 

Date posted: 8 May 2018