It’s pretty clear now that Sydney, Melbourne and Brisbane are in recovery mode and things are looking up nationally as well.

CoreLogic’s latest report, released last week, showed Sydney dwelling values went up by 1.6% - the highest monthly gain since June 2017. Melbourne bounced 1.4% - the highest gain since July 2017. Brisbane also had a small bounce of 0.2%. 

These are surprisingly strong monthly results this early into the recovery. It’s the third consecutive month of price growth for Sydney and Melbourne and the second for Brisbane.  

On a national basis, August produced the first home price rise since October 2017 at 0.8%.

Regional markets are mixed, but we have seen some price gains over the past three months in the Capital Region (areas surrounding ACT), Newcastle and Lake Macquarie and Richmond-Tweed (NSW), Wide Bay and Townsville (QLD) and Geelong (VIC).

The election result, two interest rate cuts and APRA’s easing of credit criteria (which has increased the lending criteria for many) are having a cumulative impact across Australia. 

The effect is greater in Sydney and Melbourne because these markets are on the rebound from an 18-month downturn and a greater decline in values – they’re not just recovering from tough credit restrictions which have pulled every market down a bit in recent times.

The things we are seeing in the big recovery markets of Sydney and Melbourne right now mirror the trends of past recoveries, providing further evidence that the bottom has arrived or to some extent even passed by now.

The typical scenario in a recovery is a stabilisation in prices, higher auction clearance rates and a lower volume of homes for sale.

According to CoreLogic, auction clearances have bounced back into the 70% brackets for Sydney and Melbourne – the highest levels since early 2017; and they’re above 70% for the combined capital cities, too.

New listings (defined as properties not previously advertised for sale over the past six months) are down -23% in Sydney, -20% in Melbourne and -17% nationally.

What typically happens next is we start to see increasing values, which leads to a higher volume of homes for sale as vendors gain new confidence to sell.

This doesn’t necessarily happen quickly, as demonstrated by sales data in the most recent recovery periods of 2009 and 2011.

We also saw a low volume of auctions in the recovery of early 2012 and things remained this way until early 2013. We know now that the boom period for Sydney and Melbourne began in mid-2012 but the very start of major growth periods is never obvious at the time.

This time around, auction clearance rates have been improving since the middle of May this year but the volume of homes for sale and the number going to auction remains low.

This is because home owners are waiting for more consistency before selling. They want to see similar properties down the road selling for a price that would be acceptable to them.

Looking at the history of market booms and downturns, on a national basis this current downturn was the biggest in terms of reduced home values since at least the 1980s.

That sounds scary but the reality is our national median only dropped by less than -10%.

Research analyst, Cameron Kusher from CoreLogic puts it well when he says this “speaks to the ongoing strength of the housing market over the past 40 years, which has culminated in Australia being one of the most expensive places in the world in which to buy property”.

Focusing on the big East Coast cities for a moment, let’s take a look at the largest downturns in terms of home value declines in Sydney, Melbourne and Brisbane since the 1980s.

This data from CoreLogic shows peak to trough percentage falls and proves that even in the worst three downturns, the falls were relatively small and certainly nothing dramatic.   

Sydney – Top 3 Downturns

2017-19           -14.9%

1988-91           -11.6%

1984-85           -9.5%

Melbourne – Top 3 Downturns

2017-19           -10.9%

2008-09           -9.4%

2010-12           -8.4%

Brisbane – Top 3 Downturns

2010-12           -10.6%

2008-09           -8.4%

1994-95           -5.0%

Source: CoreLogic

All of this explains why fear is, and should, be leaving the East Coast markets this Spring.

The recovery has begun and while I don’t expect August’s big bounce in median prices in Sydney and Melbourne to continue every month, we should see solid results in all three East Coast cities this Spring, with a positive flow-on effect to 2020.