Australian Property Boom Mean Reverting

Sydney has been an epicenter for speculative fervor in the Australian property market over the past decade, much like the greater Toronto and Vancouver areas in Canada.

As shown in this chart, price declines over the past year have now been about 10%. This is larger than the previous 4 declines since 1989 but still less than the 18% decline seen in the 1982 recession.

Given the run and rise of the most recent boom, further declines are likely in store for Australian property prices this cycle. This is a healthy and needed correction to help restore affordability to shelter.

That said, the downside to date has only retraced prices to 2016 levels as shown here.

Further retracement is likely and necessary; but also threatens the highly levered owners, lenders, and investors presently exposed in the space. It also is a broad negative for the larger Australian economy, which, like Canada, became precariously dependent on the realty sector and related spending since 2008. See:  

Higher-end properties have the most price to lose in this process, as credit growth recedes and an aging population looks to raise cash and reduce living expenses.

What’s causing the property bust? The levered boom before it, of course. This segment discusses recent numbers further. Here is a direct video link.

Disclosure: None.

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Gary Anderson 1 year ago Contributor's comment

Australia has some pretty unusual loans if what I read is true.