Australia’s Housing Market Looking Not So Perky

The RBA’s interest rate cuts don’t seem to be working. It’s a bit player in the global currency war, and Australia’s economy will suffer the consequences. Manufacturing’s woes are well known. But the RBA’s move to ultra-low interest rates was supposed to perk up Australian house prices, and therefore the housing market.

But data released yesterday by RP Data-Rismark suggests the Australian housing market continues to fall. The Sydney Morning Herald reports that:

‘Australian home values fell for the second year in a row in 2012, marking the worst performance for the national market in 16 years.

The 0.4 per cent decline has come on the back of a 3.8 per cent fall the previous year, according to analysts RP Data-Rismark.’

That’s not good news if you’ve bought a house in the past few years. Housing is a highly leveraged investment. For new purchases, the finance structure can be as high as 90% debt, 10% equity. So a 10% fall in house prices wipes out your equity.

But you’ve also got to factor in debt servicing costs. Despite the RBA’s efforts, mortgage rates are still high. The SMH article states:

‘Industry experts point out that while the RBA has cut the cash rate to a GFC-era low of just 3 per cent, mortgage lending rates remain significantly higher.

‘In April 2009 a standard variable-rate home loan was available at 5.75 per cent. Today, the rate is set at about 6.45 per cent.’

So the ‘cost’ of a $300,000 loan for example, is over $19,000 per annum. Add on this cost to a loss of capital value and it’s no wonder housing isn’t a compelling investment right now. From around 1995 to 2010, Australian residential property enjoyed the bull market of a lifetime. Don’t expect it to come back anytime soon.

Of course the recent pick-up in China could assist the property spruikers for a few more months at least…

China’s 2012 slowdown spooked the country’s leadership (both old and new) and they subsequently halted efforts to reform and rebalance the economy. In the latter part of 2012, they juiced up the credit engine again and went full throttle on the infrastructure spend.

I don’t expect it to last very long, but the resultant surge in iron ore prices (which will impact on Australia’s terms of trade) will provide another national income boost and possibly assist in halting the slide in Australian property prices for the early part of 2013.

Don’t be misled though, China is at the tail end of an epic credit bubble. 2013 could be the year it finally goes ‘pop’!


Greg Canavan
for Markets and Money

Greg Canavan

Greg Canavan is a Contributing Editor at Markets & Money and Head of Research at Port Phillip Publishing.

He advocates a counter-intuitive investment philosophy based on the old adage that ‘ignorance is bliss’.

Greg says that investing in the ‘Information Age’ means you now have all the information you need. But is it really useful? Much of it is noise, and serves to confuse rather than inform investors.

Leave a Reply

10 Comments on "Australia’s Housing Market Looking Not So Perky"

Notify of
Sort by:   newest | oldest | most voted

Shock/Horror – a 3.8% fall in house prices in one year. That’s terrible. Where has the sharemarket gone – it may have recovered a little but it is still about 30% below it’s peak of November 2007 – over 5 years ago!!!
Great investment shares, buy today and in 5 years you have only lost 30%. At least you can live in a house.

Chris in IT


You can’t live in an investment. If you live in a house it’s a liability (unless you rent out rooms or live in a business premises).

Effective inflation is sitting at about 5%. 5% inflation compounded over 5 years is 27.6%. That’s the drop in purchasing power of today’s dollars over 5 years ago.

Any investment that does not return 5% YoY is losing ground. That most certainly includes holding cash directly.

Chris, Very valid points but no investment provides 5% YOY without risk. Gold has dropped about 13% from it’s highs, silver even more and don’t mention commercial property trusts. Fixed term interest rates are currently about 4.5% (a little higher if you have lots of money). Other investments offer other risks so you have to weigh up the risk versus the return. Personally, I prefer property. I understand it, it provides a regular income, I can add value to it and (generally) it appreciates over time. There are downsides with property (including high entry and exit costs) but providing you… Read more »

shares v property ,ive been investing in property for the last 17 yrs and i think the most worrying part for the property investor is unemployment ,its no good having built up a nice portfolio of property if people are being made redundant ,most mum and dad investors ,invest where they can afford and most times the people who rent the properties are the first to be let go


With reduced residential construction, ‘the first to be let go’ are replaced by others in the queue, Greg. You must have noticed that during the last 17 years, surely?


HAHA!!! well since 1998 I have been waiting for the meltdown, having bought gold in the $600 mark when I finally had spare cash I can say I am ever so glad there are people stupid enough to put money on houses and prolong this while I get my investments right across the board. Ready for the death roll.

The way I see it, people are emptying their pockets and going into debt making their homes nicer. Once this finally unwinds I’m going to be paying cash for a nice place that some greedy puke suffered to improve.



‘once this finally unwinds’, billyDiddles? Let’s see, according to you, you’ve waited for that ‘death roll’ 15 years so far. Your landlord must be delighted. Be realistic, bD. It’s unlikely your ounce of gold will buy that greedy puke’s garage door after the next 15, in 2018. Happy diddling! :)


Let’s try 2028, providing you haven’t diddled away completely… . ;)

Frog your making very weak points here. How many frogmorton types were there in the US making similar comments before any financial problems hit.. This is the question. Some more questions: what did you get out of this article? Are you invested in housing? Do you think housing prices in Australia are only going through minor hiccup? What websites do you follow for your news? When the gold price goes down on the news do you run around saying gold is going down (meaning that you think its a downwards trend)? Oh and whats your occupation, it may not be… Read more »

billyDiddles: “…since 1998 I have been waiting for the meltdown…”

Yes, as I stated, above, you’re a very patient fella, whose landlord must have thought he’d won Lotto when you offered him 15 years’ rent.

Play 20 Questions with you? Demonstrate your good faith and answer them yourself. You’re the bright spark with the shiny doorstop…

Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.
If you would prefer to email the editor, you can do so by sending an email to