Interview: How five years changed property forever

Published Mar 16, 2025, 4:30 PM

Five years ago the pandemic hit, and the property market dipped almost immediately. But then it took off, starting a wild rollercoaster ride. Tim Lawless, Head of Research at CoreLogic, talks to Sean Aylmer about the last five years - the near 40pc increase in property values, the markets that have over and under performed, and what comes next.

Welcome to the Fear and Greed Business Interview. I'm Sean Aylmer. Much has changed in the past five years since the official beginning of the pandemic, but one of the most significant differences is in the property market. House prices have sowed in the last five years, along with rents, and it's not just in the capital cities. It seems every part of the country has been on a rollercoaster ride over the last five years or so. Tim Lawless is head of research for Core Logic. Tim welcome back to Fear and Greed.

Thanks again, Sean. Great to be here.

So I mean I said sword that is probably not quite right. Home values have risen by nearly forty percent since the start of the pandemic, But you know those early days wasn't the case we actually had, and we've had a couple of cycles almost in that five year period.

Yeah, it's been a really volatile five year cycle, if you want to use that term. I mean, if you remember back in the early days of the pandemic, there was a lot of fear that the sky was going to emplode upon us, and we did see Valley's fall over the first three months up to about June of twenty twenty, they fell by about nearly two percent, so hardly anything. But then they just absolutely rocketed as all the fiscal and monetary policy support came through and everybody realized it was probably a pretty good time to get into the property sector.

And then we had that big dip where some cities particularly lost more than ten percent.

Yeah, I mean that was through the early part of the RT hiking cycle, and this was really interesting. Some markets peaked well before interest rates started a rise, like Sydney and Melbourne. Both of those markets peaked in early twenty twenty two, really highlighting just affordability challenges were becoming pretty predominant after a really strong phase of growth. Both those markets had also seen a real exodus of residents to other states, so interstate migration had really plummeted. Other markets like Perth there has been Adelaide, they hardly even saw a hiccup as interest rates started to rise, particularly Perth, and those markets continue to rise and just excelerated into twenty twenty three. So yeah, there's I think diversity and some extremes were the themes through those phases of the market.

Just following on from what you said, then I've always thought that interest rates the ultimate determinant of housing markets. Is that the case? Is it the fact that in some cities interest rates are far less important than perhaps other cities.

Yeah, generally are really important factor in the market, but there's also a lot of other factors that tend to influence housing markets. And I agree there's probably markets that are more sensitive to changes in interest rates as well. So you go back through the cycles historically, and you can look at things like, you know, the macro prudential policies that were implemented between about twenty fifteen and seventeen and then the Royal Commission that really tightened up credit availability and resulted in a drop in housing values at a time when interest rates were very low. Or you can look back to say a shock like the Global financial crisis. You can look towards periods of extreme population growth and really drove housing prices as well. So there's a lot of things that tend to influence prices, and I think the fact that we saw the market lifting quite broadly in early twenty twenty three after a pretty short and sharp downturn just highlights the importance of supply as well. So that growth phase occurred against a backdrop of very low supply levels, both from an advertised supply and a newly built supply perspective that just ran headlong into a demand shock. Is overseas borders reopened and we still had this I guess challenge of very small household sizes that had become a thing through the pandemic.

Never before had I thought about tree changes, sea changes, regional values as much as I did during COVID and post COVID. What happened there, I mean initially do again certainly, but have they been maintained?

Yeah? That was just remarkable and I think it really highlighted people still had this love affair with coastal markets and well even does hinterland and tree change markets as well. We did see markets that were very high profile lifestyle regions like Byron Bay, the Southern Highlands, the Gold Coast, the Sunshine Coast. Ballarat was certainly a recipient the Surf Coast of very strong housing demand as we saw a lot of people that could work remotely where for starters that really boosted demand. A lot of these markets had come out of a pretty soft run as well, so they were very affordable at least relative to the capital cities. And then they just went through this boom in housing values and there was hardly any stock values rocketed, probably to beyond what you might describe as fair value in some markets like Byron is a good example of that, and then a lot of them did see a correction, particularly Byron. Balana is another good example of markets, down about fifteen percent. But a lot of those East and Seaboard suburbs or regions were also really heavily impacted by flooding through early twenty twenty two, so that probably contributed to some of the weakness around northern New South Wales.

And just the other thing which I should have mentioned when we're talking about cities, the unit's first house distinction. Housing really did a lot better than units, didn't they.

It's sure it is like double. You know, if you look at this five year growth rate nationally, house failures are up about forty four percent, unit values are up about twenty percent. So I think that this really just this is a reflection on everybody wanted space through the pandemic. Everybody wanted to have their depressional room, probably you know, as part of social distancing and so forth. But Yeah, house values just rocketed. Unit values didn't do too much, especially in that early phase of the pandemic. That's actually shifted now that the last couple of years we've seen a much more aligned performance between the two housing types. And again, I really think that has a lot more to do with housing affordability, just deflecting more demand towards the more affordable price points, but also the fact that the unit market is now going through quite a significant supply challenge. The multi unit sector has just become really expensive to build in and feasibility is really challenging for developers to get newly dolt stock into the market. So I think that's probably supporting some additional outports pressure across that apartment sector.

Tim, I want to talk more about affordability in a moment also, where we're heading what the next five years will look like. We'll be back in a moment. I'm talking to Tim Lawless from Core Logic. So we touched on this before the break. Affordability in that five year period where you were saying housings up forty percent, units up twenty percent. Wages certainly haven't kept up with dwelling values, have they.

No, they are up like half that if I'm not leaving a little bit less than that, Household income is exactly the same. In fact, for a lot of the pandemic real household income suggesting for inflation we're going backwards. So affordability has been the downside here. For those people that have been lucky enough to own a home, great that they're a lot wealthier because of it, but getting your foot in the door of the housing market's become a lot harder than what it was, say in twenty twenty. And you can see that just in you know, a lot of this the strength in the market has really moved out to around the mortgage belts, and now, as I mentioned, we're seeing stronger growth in the unit sector, and I think this is really reflecting those affordability challenges where mainstream demand is now probably more able to purchase only around that lower quartile of the market.

What about investors, Are they back?

Yeah, they're back in a big way. They're roughly about thirty seven percent of mortgage demands, but yeah, I mean the long term average would be about a third, so about thirty three percent, so they're overrepresented in the market. But just looking at the finance data through the last quarter of the year, or even the second half of last year, investors were clearly starting to slow down, and we can see really clearly investor appetite in the marketplace is really closely aligned with the level of capital gains that are available as well. So I think as we see that ongoing slow down in opportunities for capital growth, at least over the short term, we probably will see investors becoming less active in the marketplace. Just highlights that that's their main game here in Australia. Investors don't chase yield for property because yields tend to be quite low and they can offset any sort of cash flow losses in a negative gearing sense. They chase capital gain almost exclusively.

Okay, So the report you put out last week talks about the five years up to now and the big jump in house prices. The previous five years and the five years before that were much lower growth rates than the most recent five years. What we all want to know, Tim, what about the next five years?

Yeah? Well, that's yeah. I think the next five years will be radically different. To be honest, I think there's a lot of flicting factors here. We talk about a lot about undersupply. That's likely to support price growth. But conflicting with that is affordability. You know, if everyone needs a roof over their heads. Absolutely in vacancy rates and rental markets remain extraordinarily tight. Even rental growth is slowing down because renters are just restructuring because they've they've kind of reached a ceiling on how much they can pay. So I think, I mean, looking to the immediate future twenty twenty five, we're expecting the market to be reasonably flat, probably some mild growth, maybe even some stronger conditions in markets that have been a little bit softer, like Melbourne is starting to look like it has some stronger fundamentals despite a quite a high taxation base. Hobart as well. I mean, values there are down about twelve percent from their peak. But I think markets like Adelaide that's seem quite overvalued at the moment relative to local incomes. It's probably going to be a marketplace that's a little bit more cautious. About Brisbane and Perth, they still seem to have strong fundamentals, but I think the next five years will be similar in the sense that it's going to be a very diverse market and I think punctuated by just affordability challenges but ongoing under supply. It's going to be a long time before we start getting a reasonable number of homes built across Australia. In Sydney, yeah, Sydney's extraordinarily expensive. I mean, it's always been Australia's most expensive marketplace, even when you were just for local incomes, which tend to be higher. To be honest, it's hard to see Sydney values rising substantially from where they are at the moment until affordability starts to become a little bit healthier. What we do expect though, in Sydney and in Melbourne, is probably that upper quartile of the market, the more expensive end of the market that's probably less sensitive to affordability pressures and more sensitive to changes in monetary policy and interest rates. That's probably where we'll see an outperformance, and we're already starting to see that in the early indicators up to February. It's that upper quartel that really drove the bounce back in the month.

Tim, Thanks for talking to Fear and greed Absolute pleasure.

Thanks.

That was Tim Lawless, head of research for core Logic, This is the Fear and Greed Business Interview. Join us every morning for the full episode of Fear and Greed. Daily business news for people who make their own decisions. I'm Sean Aylmer. Enjoy your day.

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