Market clues in 30-year cycle study

Aloft view Sep 17 (2)

  • There have been five property cycles in WA since 1988.
  • Average length of boom markets is three years.
  • Average length of downturns is 2.2 Years.
  • The longest downturn is the current cycle, which began in 2014.
  • WA real estate market is due for a cyclical rebound driven by housing affordability.
  • Timing and magnitude of next growth cycle depends on return to strong population growth and continuing improvement in job creation.

A 30-year study of property cycles in WA shows the extent of the market downturn in 2014- 2018 as well as offering clues to the next cycle movement.

In the study I compared the impact on property sales of four key market drivers – the cost of finance; population growth; job growth; and housing affordability.

The current four-year market downturn is the longest over the 30-year study period and affordability stands out as the main driver of the next growth cycle. But low population growth will influence its timing and magnitude.

Annual real estate transfers 1988 - 2018
Annual real estate title transfers: Landgate


The chart above tracks five property cycles in Western Australia since 1988 based on annual real estate title transfers or property sales, supplied by Landgate.

Since 1988 the annual number of title transfers in WA have cycled between a high-point of 100,000 and 60,000 per year. The exception was 2006 when the number of real estate transfers exceeded 120,000.

The average duration of the boom phase of market cycles since 1988 is three years. The longest market boom was five years, from 2001 to 2006.  The average duration of market downturns since 1988 is 2.2 Years. The longest downturn is the current cycle, which began four years ago in 2014.

The study compared four important drivers of real estate activity in WA – the cost of finance; population growth; job growth; and affordability. Not surprisingly, it found the strongest market upturns like the 2001 – 2006 boom, were driven by a combination of all four factors, low interest rates, strong population and job growth and favourable housing affordability initially. In contrast, the weakest growth periods were driven by only one or two of the key market drivers.

Table of market factors1. Comparison of ABS Perth House Price Index to capital city average; 2. Coincides with introduction of GST

There are two principle market drivers in action in WA in 2018 – low interest rates and favourable housing affordability. While the employment situation in WA is improving the continuing negative factor is weak population growth.

The low number of real estate transactions in WA since 2014 is also evidence that large sections of the home buying market are on the sidelines waiting to re-enter when the conditions are right.

The WA real estate market is due for a cyclical rebound driven by favourable housing affordability.  However the timing and magnitude of the next growth cycle will depend on several factors, including stronger population growth and continuing improvement in the local job market.

Disclaimer: The views expressed in this article are exclusively those of the author and do not reflect the policies of organisations that the author was associated with.  The article is for general information only and should not be taken as professional advice for personal use. You should consider professional advice from a financial adviser for specific personal needs.

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