There’s no doubt our property markets have turned – but what’s really ahead for 2013?
There is no shortage of property spruikers out there to claim the next boom in property prices is about to get underway.
A more sober look at the Australian property market reveals prices have hit a wall.
2013 marks an important anniversary.
It will be 10 years since the peak of the home price boom in Sydney, which foreshadowed the end of the property price boom in other capital cities.
Between 2003/04 and 2009/10 – a 6 year period, prices grew just 10 per cent in Sydney.
By contrast they rose between 50 to 60 per cent in Melbourne, Brisbane and Adelaide and a whopping 100 per cent in Perth.
But the property boom of the 2000′s is well and truly at an end. Capital city house prices peaked in late 2008.
Two and a bit years on, they remain almost nine per cent below that peak.
Over the past five years, home prices have clocked average annual growth of just 1.9 per cent.
There were two main property booms over the last 3 decades, from 1987 to 1988 and 2001 to 2003. These booms were the result of specific events that it is hard to see repeating any time soon.
The first boom – 87 to 88 – was driven by a loosening of lending criteria by banks and lead to interest rates blowing out an eye-watering high of around 17 per cent in 1989.
We borrowed more because we could. We spent more on housing because we were richer, and could afford to do so.
Between 1980 and 2010, household disposable incomes grew by almost 50 per cent, after accounting for inflation, driven in part by rising female participation in the workforce.
A lucky generation of older Australians grew wealthier as house prices rose.
But they did so at the expense of their children. It is no wonder now that one third of young Australians can only purchase property with the help of their parents?
So it’s hard to see property prices rising much this year, unless something radically new happened to boost people’s capacity to borrow. In the meantime, homeowners will likely use lower interest rates to continue paying down housing debts.
We have been forced to confront a fundamental truth about property: it is only worth what people can afford to pay for it.
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