Are our house prices as safe as houses?

It is a wonder then, why the chatter around interest rate rises, inflation and a looming housing market crash keep bubbling to the surface. While it is completely normal to see price fluctuations between seasons and as supply and demand ebb and flow, the lack of consumer confidence this year begs the question, are our house prices as safe as houses?

When we look back at the Australian economy and housing market there are a few critical times in the history books that we should take note of when discussing what the future holds for property prices.

Firstly, the infamous recession that “Australia had to have” back in the early 1990s. This period in history saw a severe economic downturn not seen since the Great Depression. The recession was characterised by a complete dissolution of consumer confidence and record high unemployment rates and yet the record books do not tell us a story of a catastrophic housing crash. Instead, according to the Australian Bureau of Statistics (ABS), property prices rose in most parts of the country during the worst months of the recession. There were of course regions that didn’t rise but the fall was not considerably notable either given the state of the economy.

Expert economists suggest the key factor that kept the housing market alive throughout the recession was the availability of easy credit and the fact that while interest rates that were sitting at 17.50 per cent, initially rose they then fell quite swiftly throughout the following years keeping the residential property markets alive, with property prices continuing to grow in the years to follow.

Fast forward to the global financial crisis in 2008 where Australia somehow avoided a recession, economic downturn was felt across the nation and housing prices did evidently fall. It was the recovery that was of particular interest, fuelled by lowered interest rates, and the housing market bounced back steadily. The economic impact of the GFC however was key to financial institutions tightening up their lending criteria, making it harder for people to secure credit.

Prior to the GFC, banks were lending anywhere between 103 per cent and 120 per cent of the asset value, making credit too accessible and risky because literally anyone could borrow money. The restrictions that followed were obviously to protect the banks; however, they also protected the property market against strong price falls as money has become less available and therefore less economic strain in association with home ownership.

Jump forward now to 2017 and 2018, we saw another bout of economic downturn at which point there was a notable downturn in property prices. After many years of steady price growth and even while interest rates remained relatively low, housing prices dropped along with the volume of property sales. Many point to the financial services royal commission to blame as they were the driver for extremely hard-hitting policy changes implemented by lenders that were fearful of the ramifications if they breached the APRA recommendations and regulations.

With such stringent lending criteria, average people just simply couldn’t borrow money! I am sure many of those who were selling during this time recall the regular crashed contracts when buyers who were previously eligible for finance were suddenly being declined due to stringent credit testing measures.

As time passed, the lending criteria loosened and again property prices started to recover. We now look at what happened throughout the pandemic where the price growth exploded as lockdowns and work from home contributed to an influx of sea change and tree change moves, as many left cities in search of a better lifestyle in more regional areas driving prices skyward. Due to this increased demand supported by low interest rates and relaxed lending, we have seen year-on-year annual record growth in property prices across the country.

As we review these significant economic Australian events and their impacts on the property market it becomes evident that interest rate rises alone are not necessarily going to drive property prices downwards.

Yes, increased rates mean less borrowing capacity for some buyers, but our latest data suggests that while demand has slowed, it still outstrips the stock level in most regions, protecting prices.

We certainly have come to the end of the unstoppable price increases; however, this is not the time to start entertaining the idea of a housing crash, instead think of it as a temporary levelling of the market where the experienced, hard-working agents again get their time to shine as their strategies attract the right buyers and their negotiation skills seal the deal! And, given that our housing market appears to be as safe as houses, even with temporary downturns, we will see property price growth again in the future!