We investigated if this variation in suburb inflation changes or remains stable and analysed the variation at different points in time. The figure below shows the average suburb residential inflation as well as the residential inflation of the suburbs that experienced high (95th percentile) and low (5th percentile) inflation per year. These upper and lower bands represent the range between which 90% of suburbs’ average residential inflation lies in a given year. As seen the average residential inflation was between 22% and 41.3% for 90% of suburbs in 2004 during the housing boom. However during the housing crash of 2008, 90% of suburbs had an average residential inflation of between -4% and 5.9%. In 2012 90% of suburbs had an average residential inflation of between 1.1% and 9.6%.What is interesting to see is that not only did the average suburb inflation increase during the house price boom of 2004, but the variance between the upper and lower bands also increased. The variance between the upper and lower band was 12.5% in 2000, increased to 19.3% in 2004 and reduced to 9.9% during the subprime mortgage crash in 2008.
The trend indicates that not only do residential prices grow during times of economic prosperity, but there is also an increase in the variation of residential inflation between suburbs, possibly hinting to the idea that buyers are more discriminating about suburbs during the good times, therefore increasing the gap between high and low growing suburbs. When the going gets tough, buyers become less discriminating, resulting in suburbs growing in a more homogenous way.
Written by Roland du Plessis (Lightstone)