Putting housing price falls into perspective

Falls in real estate prices need to be put into perspective.

You can't open a news website at the moment without seeing endless hyperventilating about the 'crash' in real estate prices and you'd think, based on all the column inches dedicated to is, that falls in house prices were really important. But they have hardly any impact on most households or the real economy.

First, falls in asset prices only matter in real terms if the asset is sold and those falls in value are crystallised. As long as the asset stays in use and the 'loss' is never crystallised, the 'value' placed on the assets is irrelevant. Most real estate only gets sold VERY infrequently. The average time to hold real estate is over 12 years.

There are about 10.8 million houses in Australia. In an average year, only 500,000 of these houses actually get sold. When prices are falling the turnover rate also falls. Household aren't required to mark asset prices to market, and the incidence of forced sales by banks foreclosing in Australia is very low. So while the 'value' of a household's real estate may fall, the practical impact on most (95% or more) households in nothing.

Second, the vast majority of Australian properties are still well in the black. House prices have seen steady growth in value over the last several decades before the TFF fuelled boom in 2021. Only about 1.1 million houses have changed hands since January 2021. That means the more than 90% of properties were purchased at pre-2021 prices and we would need to see falls in value of more than 20% before any of these properties would actually be losing money if sold. More than 50% of properties have been held for more than 10 years, meaning they were bought at prices less than half of the peaks prices we saw in 2022.