The current rate of property price growth is slower than the past

Sure there’s been lots of talk about the current “property boom”, but how does current property price growth compare to previous cycles?

Well…maybe not as well as you would first think.

The current growth phase of this property cycle commenced in June 2012  following value falls of 7.7 per cent, and Corelogic report that home values across the combined capital cities have increased by 22.2 per cent through to January 2015.

Although this sounds like quite a strong rate of value growth it is only 0.65 per cent per month over that period.

If we look to the strongest period of growth in home values in recent years (the 2001 to 2004 property boom), growth at that time was much stronger.

Over the same period as the current growth phase, home values had increased by 58.3 per cent which equates to a monthly rate of growth of 1.77 per cent.

It is also important to remember that over the previous boom, value growth was broad-based whereas the current growth phase has been largely focused on a handful of capital cities (and in particular the Sydney property market), with the rest lagging well behind.

Source: Corelogic Property Capital Markets Report

The increase in home values over recent years has been very much focused on Sydney and Melbourne

The financial crisis in 2008 impacted on the national housing market, albeit not as substantially as it hit housing markets in other countries across the world.

Nevertheless, during 2008 home values across the combined capital cities fell by 6.1 per cent from March to December of that year.

Following December 2008, home values once again started to the rise on the back of a rapid reduction in official interest rates by the Reserve Bank and first home buyer stimulus from the Federal Government.

Historically low interest rates are one of the primary factors fuelling the growth however, the high rate of capital gains is largely only occurring in Sydney and Melbourne.

From December 2008 (the financial crisis low point in home values) to January 2015 combined capital city home values have increased by 37.9 per cent.

It is important to remember that the combined capital city index is weighted and therefore largely influenced by the bigger capital cities.

As you can see form the graph below, over the period, home values in Sydney have recorded a total increase of 56.9 per cent and Melbourne home values are up 51.8 per cent.

The next best performing city for capital growth has been Darwin where values are 24.0 per cent higher and Canberra where values have increased by 17.9 per cent.

Across the remaining cities, total value growth has been recorded at 8.6 per cent in Brisbane, 10.1 per cent in Adelaide, 17.0 per cent in Perth and a 0.2 per cent rise in Hobart.

Demographic factors are most likely playing a significant role in the fact that Sydney and Melbourne are recording a much greater level of capital growth than other cities.

Both of those regions are seeing fewer residents leave and attracting more overseas migrants. At the same time both the Melbourne and Sydney economies performed strongly encouraging consumer and business confidence