Is Today’s Property Market Cycle Abnormal?

It’s been a relatively wild ride for the property market over the past three years.

Is that normal?

Since the COVID-19 pandemic struck in early 2020, it’s fair to say that Sydney’s property market has been an interesting one.

A brief slump in mid-2020 was followed by a rapid boom, which was followed in turn by a rapid fall. Now, as we head towards mid-2023, the market looks like it may be turning again.

We explore how the events of recent years stack up compared to past market cycles to find out whether they’re normal or not.

When COVID struck

Sometimes it can be hard to remember life pre-pandemic. But if you cast your mind back to the end of 2019 and 2020, you may recall that the property market was booming. In the final quarter of 2019, Sydney’s median house value came out of a long period of stagnation and rose 5.7% according to Domain. This was followed by further gains in January and February 2020, so that by the end of March 2020 the median price had risen 13.1% in a year.

Then of course, COVID struck and sales dried up, with the median value falling -2.0% in the June quarter.

The boom of 2020-to-2021

Despite many economists forecasting house prices would tumble by as much as 20%, what ensued after this small correction was a swift rise in prices. Sydney’s median house price rose 4.8% again in the December 2020 quarter and then another 33.1% over 2021. The median apartment value grew 8.3% over the same period so that, overall, the median dwelling value grew 25.2%.

According to Domain, the speed of this boom was entirely unprecedented. Its research showed that the typical boom lasted 33 months and prices rose 32.7%. By the time Sydney’s property prices stopped rising in January 2022, the median value had risen 27.7% in 16 months. That means prices rose at roughly twice the pace of a normal boom.

By way of comparison, in the most impressive market boom of 2000-2004, national property prices rose 76.4%. And this came soon after another boom between 1995 and 2000, when the national median dwelling value rose 44.1%.

2022’s falling market

After the boom of 2020 and 2021, came the bust. Even before the RBA began lifting interesting rates in May 2022, Sydney’s median home value had started slipping. However, the raising of rates seemed to accelerate the slide, so that in the 11 months between February 2022 and January 2023, Sydney’s median dwelling value had fallen -13.5%, according to CoreLogic.

This fall was also atypical of a declining market, with Domain data showing the average downturn (on a national level) lasts nine months and prices decline -3% – making this one both longer and sharper.

There have been more severe downturns, such as in the 1890s depression when Sydney’s median house value lost 36%. There have also been longer downturns – such as between 2017 and 2019, when Sydney’s median house value fell almost -14% over two years. However, the speed of the falls in the recent boom were unprecedented in recent history.

2023: rising values and rising interest rates

Now, we seem to be entering a new market phase, with Sydney’s median value again on the rise – even in the face of rising interest rates. Sydney’s median value is now 3.0% up since the bottom of the market in January 2023, with house prices rising 3.2% and apartment values 2.3%.

What’s perhaps most interesting about this trend, is that it’s happening not only at a time when interest rates are going up, but also at a time of high inflation and sluggish wage growth. The consumer price index rose 7.8% in the year to December 2022, while wages grew 3.3% – meaning the average person actually had less to spend.

Meanwhile, the official cash rate has gone from 0.1% to 3.85% since May last year.

The last time the RBA raised interest rates was between April 2009 and November 2010, when it took the official cash rate from 3.0% to 4.75%. Back then, wages were growing by around 4.0% a year and inflation was at around 2.0%, so people’s pay packets and purchasing power were growing in real terms – not shrinking like they are currently.

Over 2010, Sydney’s median house value rose 12.7% – showing the interest rate rises didn’t dampen enthusiasm for Sydney property.

Conclusion: the ups and down of the Sydney property market

Sydney’s market has always gone up and down, although the long-term trend is for prices to rise – a result of a growing population and limited housing supply. What’s remarkable about recent gains in falls is that they’ve happened at far greater speed than normal.

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