I am calling it. The downward price spiral in house prices in the Illawarra has come to an end.
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According to the latest Corelogic data, real estate prices in the Illawarra increased by around 0.5 percent last month. This is the first time in at least 15 months that house prices have increased.
In Sydney, we have witnessed three consecutive months of price rises - after a staggering 22 months of house price falls.
The pattern of price falls is well and truly broken for the Sydney market, and I expect the Illawarra to follow suit.
So how bad was the real estate price slump? Because house prices have turned, we are now in a position to assess the total impact on households.
The peak to trough fall in real estate prices in the Illawarra was around 13 percent, while in Sydney it was 15 percent.
The Illawarra essentially follows the Sydney market with a couple of months of lag.
This time the lag on the upturn was more rapid, so the region has been spared a couple more months of house price falls.
Interestingly, both in Sydney and the Illawarra, house prices bore the brunt of the real estate downturn, experiencing peak to trough falls that were 25 to 40 percent greater than peak to trough falls in the price of units.
In the Illawarra, the peak to trough fall in unit prices was 8.8 percent while for house prices it was 14.4 percent.
Unit prices held up much better than house prices in the downturn - perhaps because they are more affordable and new buyers were more likely to buy a unit than a house during this period.
So what is next? To understand whether the upward trend will continue, we need to understand what caused it in the first place - and what didn't cause it!
Clearly, economic conditions have had little impact on the housing market of late. If the deteriorating economy was the cause of house price falls, then we should still be in a falling market.
That's because the Australian economy grew a paltry 1.4 percent to June and all indications are that it's still weakening - so the turnaround in house prices has come at a time when the economy is heading south.
Well, if it is the APRA regulations that caused the downward route in prices, as long as APRA or the federal government don't mess around with policy that could stifle real estate markets, I would say we are back to normal with property prices edging up.
- Alex Frino
Clearly, interest rates have had little to do with it. The Reserve Bank has cut interest rates to record low levels again and again in the last five years, and throughout it all, prices rose and then they fell.
We economists would say there is not enough correlation between Reserve Bank cash rate levels and house price levels to support the argument that they have had any significant impact.
So what was it then? In my opinion, it's absolutely clear. In the early to mid-2017, the Australian Prudential Regulation Authority (APRA) - essentially the boss of banks - put a number of restrictions on banks that restricted the amount that they could lend for investment purposes.
Not surprisingly, within four months house prices started falling in Sydney and kept falling for 22 months.
At the beginning of this year, this restriction was relaxed - and within about six or so months house prices started rising again.
Of course, APRA's regulation changes and the timing of swings in real estate markets do not perfectly line up.
That's because everything in the economic world happens with a lag - in slow motion, if you prefer.
So it takes property market investors a couple of months or so to start feeling the effects of the regulation changes and start reacting.
Where to next? Well, if it is the APRA regulations that caused the downward route in prices, as long as APRA or the federal government don't mess around with policy that could stifle real estate markets, I would say we are back to normal with property prices edging up.
That is great news for Australian households, who have more than 80 percent of their wealth tied up in real estate.
It's also great for the economy, as homeowners will soon start to feel a little wealthier and start spending more.
But it is not good news for first time home buyers.
While the market has given them a "red-light" special on house purchases over the past year or so by cutting real estate prices by more than 10 percent, this ground is likely to be recovered in the months, quarters and years ahead.
Alex Frino is Professor of Economics and Deputy Vice-Chancellor (Global Strategy) at the University of Wollongong.
