Over the past two decades, it’s been far more common for combined capital city dwelling values to increase rather than fall, according to CoreLogic.  

“Although value rises have been more common, it doesn’t mean that the housing market is bulletproof and in some instances values have fallen quite dramatically and rapidly,” said Cameron Kusher, research analyst at CoreLogic. “Typically the Reserve Bank (RBA) or the government have adjusted fiscal and/or monetary policy to support the housing market and arrest the value falls.”

CoreLogic’s most recent Property Pulse report indicates that across the combined capital cities, dwelling values have increased by 346.4% over the last two decades to April 2017. In the two periods in which values have declined, capital city dwelling values fell by -6.1% between March and December 2008, and then fell by -7.4% between October 2010 and May 2012.

On the other hand, at an individual capital city level, housing markets have cycled quite differently. The majority of capital cities recorded a decline in dwelling values in 2008 and from late 2010/early 2011.

“The 2008 decline occurred as the financial crisis hit with values falling. However, stimulus measures in the form of aggressive interest rate cuts along with cash handouts and boosts to first-home buyer’s grants proved enough to spur demand and turnaround the decline in values,” the report said.

As for late 2010/early 2011, dwelling values fell because the post-GFC stimulus was wound out of the market. Interest rates were also increased and first-home buyer incentives were removed. Value falls were eventually arrested when the Reserve Bank reversed its policy and slashed the official interest rate again in late 2011.   

“Looking at the declines which commenced in 2008, the magnitude of falls was fairly minor considering most advanced economies fell into recession as a result of the financial crisis,” Kusher said. “Hobart and Darwin were relatively unaffected by the declines; however, Melbourne (-8.3%), Perth (-6.8%) and Sydney (-6.2%) were more impacted than all other capital cities.”

The period of decline proved quite short, and it soon became clear that the stimulus measures implemented by the Reserve Bank and federal government had effectively staved off sharper declines and possibly a national recession.

“This analysis serves as a reminder that although capital city dwelling values have largely increased over the past 20 years, they are not immune from potential declines,” Kusher said. “The impetus for previous declines has been around external economic shocks along with the stimulus of low interest rates and grants to first home buyers being removed.”

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