Home values have fallen in real terms (after adjusting for inflation) in all capital cities over the past five years except Sydney, Melbourne, Brisbane and Canberra.
Adjusting capital city home values by headline inflation provides interesting insight into the performance of the housing market. Of course, people mostly analyse the housing market in nominal terms but looking at inflation-adjusted or real changes provides some valuable insight, particularly from an affordability standpoint. While inflation has increased by 1.0% over the year to June 2016, combined capital city home values have risen by 8.3%.
Adjusting for inflation lowers the change in home values. As you can see in Perth and Hobart it results in larger value declines. In all other capital cities, real home values have increased over the past year with Sydney and Melbourne still recording double-digit value increases.
Over the past five years, real home values have increased by a compound annual rate of 3.7% compared to 3.1% over the past decade and 4.6% over the past 15 years. While the headline figure indicates stronger annual growth over the past 5 years than the past 10 years, this is all being driven by Sydney with all other capital cities recording lower real home value changes over the past 5 years compared to the past 10 years. In fact, home values have fallen in real terms in all capital cities over the past five years except Sydney, Melbourne, Brisbane and Canberra.
