A five-year property boom has left many Melbourne homeowners struggling to accept the market can go backwards.
But in reality, the current correction isn’t even the first this decade.
The city’s median house price fell 2 per cent from $495,000 in 2010 to $485,000 in 2012, according to valuer-general figures.
That followed changes to stimulus programs brought in to stave off economic impacts from the global financial crisis.
Some market segments also suffered during 2008’s GFC, but even then the citywide median house price kept growing.
It did fall 5.6 per cent from $132,500 in 1989 to $125,000 in 1992.
In the years preceding 1992, the Reserve Bank of Australia set interest rates as high as 17.5 per cent — causing significant difficulties for those paying a mortgage.
CoreLogic Australian head of real estate Geoff White said the upshot was that Melbourne’s property market had weathered corrections in the past, and it would again in the future.
“Everyone who’s been in the industry for some years will recognise there are cycles,” Mr White said.
This downturn effectively started in 2017, and by contrast hasn’t been nearly so dire as some in the past.
“In the early ‘90s, you could hold an auction campaign and you’d be lucky if you had a handful of people through the home in four weeks,” Mr White said.
“Even as the prices are more subdued today, they aren’t that bad. The market overall is not in absolutely dire straights.”
But this one is a bit different to those in the past.
National Australia Bank chief economist Alan Oster said with a nominally healthy economy and population growth, this “unusual” correction was counterintuitive.
“Normally it’s demand driven,” Mr Oster said.
“In Melbourne at present, property markets are under-supplied, interest rates are low and you would normally not expect prices to fall under these conditions.
“So it’s difficult to say how far this is going to go.”
Real Estate Institute of Victoria senior vice president Leah Calnan said many of the reasons for the current correction did follow those seen in the past — chiefly, buyers could no longer afford to pay the prices being sought.
“(With) the royal commission into the banking sector, the changes to lending criteria and our market increasing at a rate that was never going to be sustainable or continue for an extended period of time, … it was always going to have to adjust,” Ms Calnan said.
“It’s just the way the cycle happens.”
The normal signal to the end of a property market correction is for the RBA to cut interest rates, giving buyers extra confidence — via cheaper mortgages.
But with the figure now at a 1.5 per cent record low, that wouldn’t be the case this time, Mr White said.
“Interest rates have (usually) been one of the levers for the market going one way to the other,” he said.
“Even a decrease there wouldn’t stimulate the housing economy.”
According to Ms Calnan, the market coming back up “will be reliant on changes from the funding sector, so people who want to make a purchase will be able to borrow”.
Mr White said with money still cheap, the main thing missing was buyer confidence.
“If the mentality that now is the time to buy starts to creep back in, that could change it,” he said.
“History says it won’t be that long.”
— with Samantha Landy