Why are Australian home prices rising again and can it last?

Australia’s Teflon-coated property market appears to have proved itself again. Despite the country’s first recession in nearly three decades, Aussie home values – including houses and apartments – ended 2020 a solid 3 per cent higher, according to CoreLogic data.

According to another report, the Domain House Price index released on January 28, the nation’s median detached house price hit a record high of $852,940 in the December quarter. Sydney’s median house price tapped $1,211,488 – a record peak – and Melbourne’s hit $936,073.

All this, despite the steepest decline in population growth in decades thanks to international border closures – something that should, in theory, reduce demand for housing.

Nationally, many punters are now tipping double-digit property price gains ahead. Westpac economists are banking on a 15 per cent boom in prices over the two years starting this December quarter.

But don’t values drop when there’s a recession? What’s going on – and can it last?

Shouldn’t home values fall during a recession?

You would think so – and history would be on your side. During the early 1990s recession, amid double-digit joblessness and high interest rates, home values in Sydney and Melbourne sank by about 10 per cent. Prices recovered within a few years in Sydney, but Melbourne took until about 1997 to fully recover losses.

Normally, you’d expect recessions would lead to mass job losses, forcing some borrowers into a fire sale of their family homes, depressing home values.

But this has been a recession like no other.