Property Prices Take Largest Ever 3 Year Correction

Property prices across Australia have taken the largest three year fall ever. The numbers vary depending on the week and who is publishing the article but on average it would seem that property prices have plummeted 27 percent since mid-2008. In the case of Perth the three year adjustment has been 18 percent taking the medium house price in mid-2008 from $660,000 down to $541,000 at the end of April 2011. It seems that this correction (as the experts call it) was to be expected with Australia recognised as having the most overpriced properties of any country in the world.

One of the odd heuristics of the current ‘correction’ is that those properties at the high end of the market over $1.2 million are suffering the largest corrections. For example, properties recently sold in Mosman Park lost up to 43 percent from their market price compared to three years ago (see table here). Apparently this is not ‘normal’. It seems that usually during periods of property price corrections the high end of the market generally holds up better than the lower end. But not in this correction. There is probably a very good reason for this but if there is I have not seen it explained in the items I have read in relation to this correction.

On the upside properties up to $650,000 are only (as an average across Australia) 16 percent down on their peak around late 2008.

Also on the upside the experts are predicting that while prices are likely to remain ‘soft’ and continue to correct over the next three years they are only expecting a further correction of about another 5 to 8 percent over that period. So spread over three years this would only be an annualised loss of about 2.5 percent.

Existing properties in the range $650,000 to $1.2 million are predicted to continue to correct by up to 12 percent over the three years, which is a correction of around 3.8 percent per annum.

So, assuming the experts are right, my house is going to be worth about 8 percent less in mid-2014 than it is now.

Fortunately experts are often (sometimes) wrong. There are probably at least a hundred things that could happen that could cause prices to hold and not fall any further, and maybe, possibly, even go back up over the next three years. Maybe.