How has the rate of decline in the Aussie housing market measured against the US, UK and NZ?

Based on CoreLogic’s House Price Index (HPI), it’s been 69 months since the US housing market peaked.  Since the national index for ‘single family combined homes’ reached its high point back in April 2006, US home prices have fallen by 32.8%.

The first three years of US home prices coming down could be characterized as a reasonably steep downwards trajectory.  Using a compounding growth rate, between April 2006 and April 2009 the annual rate of decline averaged 11.4% or 30.5% overall.  Most of the home value destruction was over and done with in the first three years directly after the market peaked.  Home values have come down a further 1.9% year on year (on average) since that time.  Note, if you would like a complete run down on the US housing market, you can’t go past the ‘Market Pulse’ report from CoreLogic (January’s report was released last week).

Similarly, in the UK (based on the Halifax Index) the initial period of decline showed the steepest trajectory with home values falling by 10.5% per annum over the first 24 months post peak.

Using Property IQ’s House Price Index for New Zealand we can see a similar trend with the steepest trajectory of decline being recorded across the first 16 months after price peaked (down 9.6% over that period or 7.7% on an average annualized basis).

Looking at Australia, while there isn’t a long time series of data since the market peaked back in October 2010, values are down 3.8% in total (3.5% on an average annualized basis). The downwards trajectory in Australian dwelling values fits reasonably closely with the US trajectory over the same 13 month time frame (US prices were down 4.4% over the first thirteen months post peak compared with the 3.8% fall in the Australian market).  Six months later the US market was recording falls of 1-2% month-on-month as the US banking sector imploded, unemployment and mortgage defaults rose swiftly and the GFC spread around the world.

If the November results from the RP Data – Rismark Hedonic Index remain consistent (November month on month result was +0.1% s.a.) and we see another flat result for December, it may provide the best indication yet that the Australian housing market is flattening out.  The risk of a US style housing meltdown are looking increasingly remote.  The key factors to watch will continue to be interest rates and the labour market data.  With inflation tracking lower than expected, speculation about further rate cuts is likely to improve market sentiment.  In balance, unemployment is ticking upwards and the banks are looking unlikely to pass on any cash rate cuts in full.  Overall I think we can expect market conditions to remain reasonably flat over the first six months of 2012 at least.

About Tim Lawless

Tim heads up the RP Data research and analytics team, analysing real estate markets, demographics and economic trends across Australia

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12 Responses to How has the rate of decline in the Aussie housing market measured against the US, UK and NZ?

  1. demografix January 27, 2012 at 4:00 pm #

    Mmmm…casualisation of the workforce now has us at 33% as casuals or part time. The ABS unemployment stats are useless to say the least. Underemployment is the real number and participation rates.

  2. MT January 27, 2012 at 4:28 pm #

    Great work Tim, though I thought Dec 2010 was the national house price index peak as recorded by RP Data, or have a missed a revision in the data ??

    • Tim Lawless January 27, 2012 at 4:47 pm #

      Hi MT, well picked up, and yes there has been some revision. Based on our end of December ’11 index release (publishing November ’11 results) the market peak across the combined capital cities index has shifted from Dec 2010 to October 2010 (not that there was ever much difference between the figures). The November Home Value Index results shows a 0.1% difference between Oct 2010 and Dec 2010. Tim

      • Nathan Webb January 30, 2012 at 3:36 pm #

        Hi Tim,

        Is the full series, with final revisions, available anywhere? As a comparison, you can download the ABS house prices series in XLS format, but since they are Government, that’s to be expected. Just wondering if you have the final revisions available as they don’t seem to be published anywhere.

      • Tim Lawless January 30, 2012 at 3:40 pm #

        Hi Nathan, we publish the month to month revisions on each release, however the complete back series is only available to subscribers of our index data.

      • Nathan Webb January 30, 2012 at 8:37 pm #

        The month to month revisions unfortunately don’t add up to -3.8% and also show the peak was in May 2010.

        So can you confirm that the following numbers are correct, which are the month-to-month revisions as published in the monthly pdfs (in the news release section of this website)?

        May-10 0.3%
        Jun-10 -1.0%
        Jul-10 -0.2%
        Aug-10 -0.4%
        Sep-10 -0.1%
        Oct-10 0.3%
        Nov-10 -0.1%
        Dec-10 0.3%
        Jan-11 -1.5%
        Feb-11 -0.5%
        Mar-11 -0.6%
        Apr-11 -0.4%
        May-11 -0.3%
        Jun-11 -0.4%
        Jul-11 -0.6%
        Aug-11 -0.6%
        Sep-11 -0.4%
        Oct-11 -0.6%

        This adds up to -7% to me, which is way out of whack with your figures, and I can’t figure out why they would be so different. Surely my maths (or excel’s in this case) isn’t that bad!

        7% would also have us tracking a little bit below the US after 18 months.

      • Tim Lawless January 30, 2012 at 9:02 pm #

        Hi Nathan, if you took those revisions from the month to month media releases, they would be correct (if your data entry was correct) for just that month, however the back series of the indices are revised on every release. We include any new transaction data that has flown through since the initial release. The complete population of transaction data can take up to three months to be received from each state government. Each month when we publish index data, the calculation uses the complete set of revised index data – so the level of revision will change (reduce) each month. All our index subscribers receive a complete set of revised back series data on each publication.

  3. Technofreak January 28, 2012 at 7:31 pm #

    Love the little uptick there for Australia…the one all the spruikers are salivating over at the moment…LOL!!

  4. Comnenus January 29, 2012 at 11:50 am #

    Yet you can argue that December’s data is just statistical blip……call it “noise” if you will. It is very irresponsible to make conclusions using only one month’s worth of “positive” data. Your 2 dimensional graphs ignore an important point. If bank credit is harder to obtain in Australia, then people who a year ago could borrow say $500K, may find that they can now only obtain say $450K or less. Unless they can save the difference, they can only really bid what the bank lends them. Basic finance which is always ignored. We are going to pay the price for banks irresponsibly lending money to certain buyers-sheep who thought that their ” trustworthy” banks would not possibly lend them all this money unless their houses are truly worth what they paid for them, not realising the existence of an asset bubble taking hold. Banks don’t care because they know they will force the government to bail them out. Governments will bail out banks first and distressed borrowers will just be collateral damage. This is where the similarities with the UK, US and Ireland will occur.

    • Tim Lawless January 30, 2012 at 9:19 am #

      Thanks Comnenus, I’ve actually referred to the November Index results as “flat” at +0.1%, so I think your suggestion of being irresponsible is misplaced. I agree that bank finance is all important and we have commented on housing finance plenty of times across our blog – new loan commitments (ex refi) have been improving but off a very low base and mostly within NSW. With regards to your other comments, I suppose time will tell. In my view Australian banks have been comparatively very responsible in their lending practices with only a very small sub-prime loan market pre-2008 (even smaller now) and a very low rate of loan arrears (still well under 1% as you can see in graph 3.9 here). The December results from RP Data and Rismark are released tomorrow which should provide some further indication about any developing trend or otherwise. Stay tuned!

      • Comnenus January 30, 2012 at 7:40 pm #

        Well actually you made a prediction that “market conditions are to remain reasonably flat over the first six months of 2012 at least” so tomorrow’s release does not cover this. 2 months worth of data is not enough for a trend. Lets have a look at the house prices and loan arrears in the near future when there is more data for analysis. Trying to predict turning points is a difficult exercise. Time will tell if australian banks were wise to increase their exposure to property loans (fuelling an asset bubble) as happened in the UK and Ireland at the expense of job creating business in desperate need of capital.

  5. Bintang February 4, 2012 at 6:27 pm #

    Why should the rate of decline from peak of house prices in a small country like New Zealand provide any insight into what might happen in Australia? I have provided an alternative view here:
    My analysis confirms that the New Zealand market will not experience the same rates of declines as the other markets but that by no means gets Australia ‘off the hook’. I predict the following declines from peak to trough during:
    USA 38%, UK 25%, AUS 31%, NZ 11%

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