Three reasons why the long-term bull market in Australian house prices may be getting close to the end

April 21st 2021

long term bull market main

Key points

  • Australian home prices are currently in a cyclical upswing which likely has further to go into 2022.
  • However, the longer-term bull market, that has seen above-trend growth in property prices since the mid-1990s, maybe close to an end as the long-term decline in interest rates bottoms out, property undersupply swings towards oversupply & the “escape from the city” phenomenon takes the pressure off city property prices.
  • This may at least take some pressure off average capital city property price growth in the decade ahead.



The Australian housing market is booming. Prices are rising sharply, auction clearance rates are very strong, sales are surging, and housing finance is around record highs. This is being driven by record-low mortgage rates, multiple home buyer incentives, economic and jobs recovery, pent up demand, activity associated with a desire to “escape from the city” and an element of FOMO (fear of missing out). Forecasts for prices to rise 15% to 20% in total across this year and next now seems consensus. So here we go again with yet another cyclical property boom against the backdrop of poor affordability and high debt levels! Of course, we all know this, but how does the latest upswing fit in the context of the long-term or secular swings in the Australian property market?


Mega booms and busts in Australian home prices

The next chart shows real Australian home prices (average property prices after removing increases in consumer price inflation) indexed to start in 1926 at 100 (red line) against their long-term trend (blue line).


long term bull market 1
Source: ABS, AMP Capital


Over the last 100 years, real property price growth has averaged around 3% per annum in Australia which out of interest is in line with long term average real GDP growth (which is a rough proxy for long-term income growth). While property prices go through lots of short-term cycles, these are less noticeable when annual data is used as in the last chart. In a big picture context, we can see that real Australian property prices have gone through three major long-term booms (highlighted with green arrows) and two major long-term busts or weak periods over the last century.


long term bull market 2
Source: ABS, AMP Capital



The current long-term boom was initially set off by the shift from high to low-interest rates with mortgage rates dropping from around 17% in the very early 1990s and trending down to the point that they can now be found for less than 2%. Through the first half of the 1990s, this was offset by recession and there was a fear that rates would bounce up again. But through the second half of the 1990s, the trend to lower rates became entrenched and believed. At the same time, financial deregulation and increased competition in the home lending market led to easier access to debt. This with the growth of two-income families combined to result in home buyers being able to borrow more and hence Australians being able to pay each other more for the property. So, prices & household debt surged.

Normally the resultant surge in property prices – with average prices up 11% per annum between 1998 and 2004 – would have led to a surge in supply which would have brought prices back to earth, but this was thwarted from the middle of last decade by a surge in underlying demand for housing. This can be seen in the next chart.


long term bull market 3
Source: ABS, AMP Capital


Annual population growth surged from around 2005 with average population growth rising from around 215,000 pa over the decade to 2005 to 370,000 over the 2006 to 2019 period, which would have implied roughly the need for an extra 50,000 dwelling per annum but supply did not start to catch up until after 2015, which led to a chronic undersupply of housing.

This combined all goes a long way to explain how Australian housing went from cheap in the mid-1990s to expensive in the early 2000s and has stayed there ever since. Tax breaks for property and foreign demand at times may have also played a role but the main drivers have been the combination of low rates and an undersupply of the property where people wanted to live (big cities). Other countries have low rates and tax breaks too, but they have kept housing more affordable because of a better supply/demand balance eg, according to the Demographia Housing Affordability Survey the median multiple of house prices to income is around 6 times in Australia compared to 3.5 times in the US and 4.5 times in the UK and in Sydney and Melbourne its around 10 times.


The long boom may be close to the end

Our own forecasts see house prices rising another 15% or so out to the end of 2022, although the pace of growth will likely slow thanks to worsening affordability, likely higher fixed mortgage rates and a likely tightening in lending standards. But there are good reasons to believe that the long-term boom in Australian property prices may be close to an end. The last two long booms were bought to an end by Depression and stagflation which hopefully won’t be the case this time. And it’s not necessarily the case that it will end with a crash either. However, there are three reasons why it may fade in the years ahead:


long term bull market 4
Source: ABS, AMP Capital



Concluding comments

The Australian property market has continuously surprised on the upside over the last two decades and it could continue to do so: there could be one last low in interest rates (negative rates anyone?); population growth may bounce back faster than expected once borders reopen, and once the pandemic is over Australians could forget lifestyle and return to the rat race. That said there are good reasons to expect that the forces that have driven average Australian capital city property prices well above trend and well above price to income ratios seen in other comparable countries over the last two decades may be at or close to having finally run their course. Of course, Perth and Darwin may be exceptions to this having just emerged from deep six-year bear markets.


If you have any questions about this please contact us.

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About the Author

Dr Shane Oliver, Head of Investment Strategy and Economics and Chief Economist at AMP Capital is responsible for AMP Capital’s diversified investment funds. He also provides economic forecasts and analysis of key variables and issues affecting, or likely to affect, all asset markets.

Important note: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided.