Property prices tell very different stories across the same city

Residential price trends are far more nuanced than a single city-level figure suggests.

Housing market reporting often focuses on price changes at a national level, or at a capital city level. That is the easiest way to describe broad market trends and a good starting point for understanding sentiment, but it is much less helpful in understanding what it means for the value of your property, your next home or an investment you are considering.

How prices perform depends heavily on where a property is and what type of dwelling it is, and the difference between houses and apartments can matter as much as the difference between suburbs.

Headlines are not your property’s story

If you own a home and broad reports show prices are rising, you feel better off. When reporting shows the opposite trend with home values falling, as we have seen recently, you instantly feel worse off.

If your home is worth $1,000,000 and prices are reported to have dropped 5 per cent, you feel like you’ve just lost $50,000. Between two specific points in time that may be true, but it loses sight of what happened before that point, which in most Australian markets was significant growth.

Over the long term, Australian housing prices have trended upwards, sometimes faster and sometimes slower. Values do dip through the cyclical stages of the market, but those dips have sat within a much longer upward trend.

While reported figures vary slightly, Australians typically own their home for around 10 years. That is well beyond a single market cycle, and over that kind of timeframe the price a home sells for has typically been higher than the price at which it was bought.

Why property price performance varies

Over time, property markets are shaped by many factors, but at their core are supply and demand, pressures that are not equal across a city.

The cash rate is the same everywhere and mortgage rates are broadly consistent, but local demand and supply conditions differ.

Some areas see higher demand than others. The most desirable suburbs, with beaches, good schools and similar amenity, typically see the highest levels of demand, with spillover demand flowing outwards from there. Rapid transit corridors can also see outsized demand, and where new infrastructure changes the accessibility of a location, demand can shift quickly.

These demand pressures then work against the level of supply in a market.

Some of the most desirable markets have limited new supply, so when demand is high, prices are squeezed upwards. Where a market can deliver more supply, even elevated demand can result in more modest price growth. This varies suburb by suburb, and the type of new supply also affects pricing.

In established suburbs, new supply is usually medium-to-high density, such as townhouses and apartments. New standalone houses are very difficult to create, so demand for the existing stock builds as populations grow.

Houses and apartments therefore sit on different supply curves, and can perform differently even within the same suburb.

The five-year view

Using Local Government Areas (LGAs) as a proxy for this geographic variance, the charts below show how prices have moved over the last five years.

Performance differs between cities, and also between areas within the same city. Houses and apartments are shown separately, and in many areas the two have performed quite differently.

What this demonstrates is that headline housing market figures can reflect broad trends and sentiment, but they don’t always apply directly to your property.

Looking at these changes over a five-year period is also a useful reminder of what longer-term price movements look like, and how a short-term fall can sit within a longer-term rise.

Taking the longer view

Markets are cyclical, and when monetary policy tightens, price growth often slows. The reverse can also apply, when monetary policy loosens, we could again see a positive shift in price levels. In both directions, the effects are not equal. Local factors have a big impact on longer-term property trends.

Rather than reacting to the headline number, the better question is what drives value in your area, or the area you are looking to buy in.

At its simplest, this is the underlying demand for the area and what new supply looks like, for both houses and apartments.

Australian housing has trended upwards over a very long time, and with strong fundamentals still in place, there is good reason to think a longer-term view remains well supported.