Real estate cycles: why your city’s prices are rising or falling more

Up 25 per cent, or down 2 per cent? There’s a huge difference in home values across Australia, and a key reason for much of it.

Australia’s two smallest state capital cities highlight the power of property cycles and how they impact home buyers, homeowners and investors.

Fresh home price data has landed, showing a big split in cities doing well and cities doing poorly.

PropTrack says home values over the past 12 months have grown 22.8 per cent in Perth, 14.8 per cent in Adelaide, 13.9 per cent in Brisbane, 6.1 per cent in Sydney, 1.8 per cent in Darwin and 0.7 per cent in the ACT. However, they have fallen 2.1 per cent in Hobart and dropped 0.8 per cent in Melbourne.

Separate figures from CoreLogic show similar wide discrepancies, although it reported a slight annual rise in Melbourne home values of 0.2 per cent despite prices there slipping 0.9 per cent in the three months to July 31. It also reported a bigger annual rise for Perth (up 24.7 per cent) and Brisbane just pipping Adelaide for the year (16 per cent versus 15.5 per cent).

So today, we have annual property price growth ranging between about 25 per cent and negative 2 per cent. I cannot remember a bigger difference in the past 30 years. So much for rising interest rates having a blanket impact on housing.

Reasons for the broad national strength have been widely reported: a supply crunch caused by our surging population, Australia not building enough houses, and soaring rents pushing more people toward ownership.

Moves in home values vary dramatically between cities. Picture: iStock

They don’t explain the wide variations between capitals, where property price cycles move at different speeds and in different directions depending on where you live.

Four years ago, Hobart’s home values were higher than Adelaide and Perth, and close to Brisbane. Today it’s the lowest state capital by at least $100,000, while Adelaide jumped from the lowest to fourth-highest state capital.

Melbourne has suffered a fall from grace, having ranked number two in mid-2020 for home values and now sitting behind Brisbane and Canberra, as well as perennial leader Sydney. Politics and new taxes in Victoria have been blamed for much of its price woes, but the cycle still plays a key role in driving supply and demand.

If a city has had price rises for a few years, it’s more likely to take a breather for a few years, until demand builds up again. For long-terms owners, history has shown you only need to hold real estate for a couple of rising cycles to be financially secure for life.

Property price cycles have implications for anyone who owns, sells or buys real estate:

• Owners may be frustrated to see other cities’ price growth surging ahead of theirs, but patience usually pays off. Real estate works best as a long-term asset, and that means riding out cycles.

• Investors can consider buying interstate, where house prices are lower in the cycle relative to history and their own city. People who invest interstate also can avoid huge land tax bills.

• First home buyers should know where their city sits in the cycle. It may not change their decision to buy, but if their city has been booming, perhaps their expectations of future short-term growth should be tempered.

Remember that compared with 10 and 20 years ago, all state capital cities have delivered nice growth.

Originally published as Real estate cycles: why your city’s prices are rising or falling more