“This time is different” have been described as the four most dangerous words in investing by Sir John Templeton. But there is good reason to believe this Australian home price downturn cycle will be different. Most assets (cash is an obvious exception) benefited from the downtrend in inflation and hence interest rates since the 1980s and are vulnerable to its reversal. While unlisted assets like property are slower to respond than listed assets, they are not immune. And residential property particularly so, as exposure to it is highly geared. Residential property price downturns in the last 25 years have mostly been mild, with prices falling less than 10% and brief, with prices quickly rebounding to new record highs as rates fell to new lows. This cycle may be different – both in terms of being deeper and taking longer to recover – thanks to a combination of high household debt levels, high home price to income levels and an end in the long-term downtrend in interest rates.

The slide in prices continues and is now broad based

Australian dwelling prices fell another 1.6% on average in August according to CoreLogic, their fourth monthly decline in a row, and their fastest monthly decline since the early 1980s recession. After surging 28.6% between their pandemic low in September 2020 to their high in April, average property prices have now fallen 3.5%, which is comparable to the pace of decline over four months going into the 1980s & 1990s recessions and the GFC. Prices fell 2.3% in Sydney for the sixth monthly decline in a row and they are now down 7.4% from their high. Seven of the eight capitals saw declines.

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Rick Maggi…