What will trigger the next property downswing?
With housing market values at record highs, and strong demand driving above-average levels of buyer activity, CoreLogic has found many are asking "what will trigger the next housing market downturn, and when."
Before examining current headwinds for the current housing market upswing, it is insightful to examine what has happened historically at the national level.
Going back to 1980, CoreLogic has observed 9 periods of sustained housing market value decline.
The average downturn has lasted 12 months, with an average peak-to-trough decline of -4.8%.
This compares with fairly long periods of an upswing, in which values have increased on average 33% historically.
Several of these downturns occurred around negative economic shocks, including the global recession of the early 1980s, the Australian recession in the early 1990s, the GFC, and the COVID-downturn.
However, there are longer periods of decline such as from 2010 and 2017, that were triggered by a more restrictive stance on monetary policy or bank lending.
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What will stop this cycle?
At this stage, the most likely triggers of another housing market downswing would be a change in mortgage lending rates or lending conditions.
Other possibilities that may induce a downturn would be an increase in COVID-19 cases, or an influx of new listings supply off the back of deteriorating economic conditions, although this scenario looks less likely as the vaccine rollout continues and Australia’s economy gathers some momentum.
It is also worth noting that there is a ceiling to the recently observed market momentum that simply comes from constraints on affordability and willingness to pay.
Through April, growth in the national housing market fell to 1.8% from 2.8% over March, and every capital city but Adelaide and Darwin saw a slowdown in the monthly growth rate through April.
While the change in dwelling values is expected to remain positive in a low-interest-rate environment, the coming quarters are unlikely to match what was observed through the three months to March.
Editor's Note: This is an extract of Corelogic's Quarterly Economic Review