Here we will analyse each stage of the cycle, how it relates to Melbourne houses, what drives the shift from one stage to the next, and what different types of investors are thinking and doing at each point… 

As we talk about the indicators that signify each stage, you’ll probably be able to think back to the clues that were there, in retrospect, in cycles you’ve experienced in the past.

This is critical because if you don’t look for your own evidence, the media will lead you astray. 

We have applied the 18 year real estate cycle theory (around 14 years up, 4 years down) to Melbourne House prices.

If you wish to understand the true picture of the Melbourne housing market, ignoring all the hyperbole, this is a must see.

We’ll start at the beginning of the LAST major cycle (1997) so you can see how that one panned out before looking at the current cycle. 

 Melbourne residential property prices as recorded by BIS-Shrapnel showed that the market peaked in 1989 following the stock market crash of 1987 which was known as "Black Monday." 

In October 1987, the international Stock Market Slump saw markets crash around the world. The crisis originated when Japan and West Germany pushed up interest rates, pressuring US rates also to rise, triggering a massive sell off of US shares. Global share prices fell an average of 25%, but Australia saw a 40% decline. 17 of the 18 major OECD economies experienced a recession in the early 1990s.

After the stock crash, money flooded into the "safe haven" of property by investor spooked by the crash.  Prices took off in Melbourne after the October 1987 crash. (See chart below)

While not as dramatic a rise as seen in Sydney, it was still substantial. The housing variable interest rate between 1986 to 1989 was between 14%-17%.



"Price increases in housing of 77% at a time when interest rates hit 17%."

Melbourne house prices had enjoyed a 8 year boom between 1981 to 1989 rising a total of 171%.

This boom had followed the 4 year slowdown, (1976-1980) when real house prices after adjusting for inflation FELL 17.5%.


Before this  downturn, there had been another boom and strong growth since 1969 (BIS  Shrapnel's first records) of 294% in the years following 1969.

After 1990 we can turn to Residex "Melbourne Houses Capital Growth" as they started recording accurate monthly data commencing in 1990. Prior to that the only real source of data was annual figures compiled by BIS Shrapnel since 1969. 

Melbourne suffered a long downturn and recession after the 1989 crash.

According to former Reserve Bank Governor Ian Macfarlane:

"The recession started in the September quarter of 1990 and lasted until the September quarter of 1991. During the recession, GDP fell by 1.7 per cent, employment by 3.4 per cent and the unemployment rate rose to 10.8 per cent. Like all recessions, it was a period of disruption and economic distress. It was particularly deep in Victoria, where a disproportionate share of the financial failure occurred. Victorian employment fell by 8.5 per cent compared with a fall of 2.1 per cent for the rest of Australia."

— Ian Macfarlane, former Governor of the Reserve Bank of Australia, speaking in 2006.

Following the early 1990s recession, Australia experienced a record period of economic growth.

 But in Victoria, investors only started to come back (slowly) to the market 1996, attracted by falling vacancy rates (down from 5% in 1994 to just 2.5% by 1996), lower interest rates, stamp duty savings which had been introduced by the Joan Kirner's Labour Government to help stimulate the building industry, , and the high and rising rental yields that were on offer as a result of undervalued prices.

Rental yields had risen  in 1996 to 5.2%, the highest Melbourne had seen since 1988.

As the recovery phase develops, more buyers will have the confidence to enter the market – having the effect of pushing prices gradually upwards.


When the crash hits (so the theory goes) house prices will usually take 4 to 5 years to recover, to reach what they were before. Then there follows a period of steady house price growth for another 6 to 7 years, followed by a small(ish) correction for a year or two known as the mid cycle correction.


And then suddenly house prices start booming, rapidly increasing for 5 or 6 years as you enter bubble territory. And then the next crash hits SOMETIME AROUND THE 5 TO 7 YEAR, making a total of between 12 to 14 years upturn. Then we start all over again.

With the recovery beginning in Melbourne in January 1997, we can see the end of the boom clearly in October 2010, making a total upturn of some  13 years.

Here’s what it looks like in the graph: 

The upturn in Melbourne ended in October 2010  when Melbourne then entered the DOWNTURN PHASE. The upturn had lasted nearly 14 years!

Australian Interest rates:


The Melbourne upturn then began in earnest in September 2013, following a 3 year downturn, EXACTLY as the cycle predicts. 14 or so years up, around 4 down, then another 14 or so up.

With interest rates falling, and strong population growth, prices started rising as investors and home owners were tempted back into the market.

As the theory goes, one should look for, and expect a mid cycle correction. With prices correcting in 2018, many believe the boom is over, BUT IT SEEMS HIGHLY LIKELY THIS IS THE MID CYCLE CORRECTION. 

, Prices could easily start to rise again in the second half of the cycle for the "mother of all upturns" as some are now believing.

 If so, this cycle and upturn should end continue to around 2026-2027

  In any event, expect even more explosive growth from 2020. They may well rise in this explosive growth phase, before the major downturn next begins. 

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