Australian Real Estate Market: Rent Increases Slowing Down

“This is well over the 30% threshold and demonstrates how significant the impact of interest rate rises can be on mortgage serviceability,” the report acknowledges.

March 15: Property Prices Stabilising But Uncertainty Lingers
There are positive signs that Australian property prices have steadied in recent months, but experts are warning it’s too early to call the bottom of the market.

According to CoreLogic’s Daily Home Value Index (HVI), prices are up 0.3% across the five largest capitals through the month-to-date. Sydney prices are .5% higher for March so far, Melbourne and Perth are a slight .2% higher, and Brisbane values are flat.

However, according to CoreLogic CoreLogic research director, Tim Lawless, the housing market is still facing “some considerable downside risk”.

“With this in mind, it’s still too early to call a bottom of the cycle,” Lawless said.

“Interest rates may rise further from here, as well as the fact that we are yet to see the full impact on households from the aggressive rate hiking cycle to date.

“Additionally, economic conditions are set to weaken through the middle of the year, as household savings buffers are being depleted and labour markets are likely to loosen further.”

Lawless noted that rate of new market listings may help fill in the picture of Australia’s property market in 2023.

“Any sign of a larger-than-normal level of freshly advertised stock could signal that prospective vendors aren’t willing or able to wait out the downturn any longer,” he noted.

“Given the uncertainty ahead of us, the next few months will be critical to understand whether the housing market is indeed moving through an inflection point or if it is simply the eye of the storm.”

Related: Is the Australian Property Market Going to Crash?

March 3: First Home Buyer Loans Fall To Five-Year Low
In a sign that the Australian property market remains as tough as ever for new entrants, the number of new owner-occupier first home buyer loans fell 8.1% in January 2023, according to new ABS data.

The figure marks the its lowest level of activity since February 2017, and comes despite Australia’s property market cooling over much of 2022 and a swag of government grants designed to help first home buyers enter the market, including the First Home Loan Deposit Scheme and the First Home Super Saver Scheme.

According to the ABS, the value of new owner-occupier loans fell 4.9% $14.7 billion in January 2023, while new investor loans dropped 6% to $7.4 billion. Combined, new loan commitments for housing fell to a total of $22.1 billion or by 5.3%

“Owner-occupier first home buyer lending continued to decline from the high reached in January 2021,” noted ABS head of finance and wealth statistics, Mish Tan.

“The decline coincided with the winding down of COVID-19 pandemic stimulus measures.”

Tan also cited “anecdotal feedback” from lenders that reduced borrowing capacity due to rising interest rates had impacted overall demand for new housing loans in recent months.

March 1: Housing Values Show Signs Of Stabilisation—But Will It Last?
Australian property prices received a respite from sharp drops this month due to low advertised stock levels and a rise in auction clearance rates.

According to the latest CoreLogic Home Value Index (HVI), the national decline was only -0.14% in the past month–the smallest monthly fall since May last year.

May 2022 was when the RBA first began its rate rising cycle, with the property market seeing a -0.13% decline of the HVI that month. To put that into perspective, for the month of September in 2022 (following many consecutive rate hikes), the HVI had declined by -1.6%.

Now, for the month of February 2023, the “most significant driver of the national deceleration” in price falls, according to CoreLogic’s report, was a 0.3% rise in Sydney dwelling values.

Excluding Hobart (-1.4%) and Darwin (-0.3%), every other capital city saw housing values fall by less than -0.5% over the past month.

The stabilisation of housing values, CoreLogic research director Tim Lawless explained, coincides with “consistently low advertised supply levels and a rise in auction clearance rates”.

“This trend towards a below average flow of new listings has been evident since September last year, coinciding with a loss of momentum in the rate of value decline,” Lawless said.

Whether this trend will continue is uncertain, with CoreLogic acknowledging that housing demand and the Australian property market could be further dented if the rate hiking cycle continues.

“Considering the RBA’s move to a more hawkish stance at the February board meeting, along with an expectation for a weaker economic performance and a loosening in labour markets, there is a good chance this reprieve in the housing downturn could be short-lived,” Lawless said.

“We also have the fixed-rate cliff ahead of us; arguably the full impact of the aggressive rate hiking cycle is yet to play out.”

February 15: Northern NSW Leads the Drop as Covid Boom Cools in Regions
Covid-19 may have breathed new life into Australia’s regional property market, but just one day on from Valentine’s Day and a new report says it’s a “love affair” that’s swiftly coming to an end.

In October 2022, CoreLogic’s Regional Market Update–which examines Australia’s 25 largest non-capital city regions–showed that 21 of those regions had recorded an increase in house values over the year.

Now, a mere few months later, the same report shows only 13 areas have recorded an increase in the year to January 2023, with CoreLogic stating that “Australia’s COVID-induced whirlwind love affair with the country’s hottest regional cities has run its course”.

Of the 25 regions analysed, the region which recorded the weakest performance across all metrics (being annual growth, drop in sales volumes, longest days on the market, and highest vendor discounts), was Richmond-Tweed, a coastal and hinterland region in northern New South Wales.

Richmond-Tweed’s yearly growth rate was -18.6%; its drop in the volume of sales was -36.1%. It had a longest time on the market record of 71 days; and the highest vendor discounts of -8.3%.

CoreLogic’s head of research Eliza Owen said in the report that it’s unsurprising Richmond-Tweed was the region to report the weakest performance across key metrics.

“This was the region where values skyrocketed, with houses increasing more than 50% during COVID, taking the median house value to more than $1.1 million,” Owen said.

“Since then much has changed with borders reopening, outbound travel returning, workers returning to the office not to mention the overlay of nine rate rises.”

And with the RBA’s warning that further rate hikes are on the agenda to curb inflation, Owen said it’s expected that housing values will continue to trend lower in the coming months–with regional areas not immune to the softer conditions.

However, regional market performance overall remained more resilient than capital city dwelling markets.

Since the incessant rate hiking began last May, monthly value changes have averaged -0.8% across regional Australia in the year through to January, compared to -1.1% in the capitals.

Regardless, the downwards trend is expected to continue across the board until interest rates stabilise.

January 30: Homes in Qld Capital Surged by 43% During Covid
Brisbane became one of the standout property markets during the COVID-19 property boom, as many locked-down homeowners south of the border sold up and bought bigger homes up north—often for a fraction of the price they would have paid in Sydney or Melbourne.

The result? Brisbane’s housing market boomed by 43% between key lock-down periods (at least for Melburnians) of August 2020 and June 2022, according to CoreLogic’s Daily Home Value Index (HVI).

“It was the fastest trajectory of rising values on record,’” CoreLogic’s head of research, Eliza Owen said.

But what goes up, sometimes must come down—and as the HVI reveals—Brisbane’s home values declined 10.9% between the peak in June of last year and January 28, as the RBA started lifting rates. Usually declines happen over a number of years, but this 10.9% decline took a little more than seven months, making this both the “largest and quickest decline” in the Brisbane HVI so far.

“Brisbane now stands out as one of two capital city markets with record declines, the other being
Hobart,” Owen said.

“Sydney continues to have the largest peak-to-trough falls of the capital city markets
—currently at -13.8%—while peak-to-tough falls remain mild in some cities, such as Perth, where
values are down just -1.0% from a recent peak in August 2022,” she said.

Despite Brisbane values coming off strongly in the last six months, Owen notes that the median dwelling price in Brisbane is still up on pre-pandemic values: from $506,553 at the onset of COVID-19 in March 2020, to $707,658 at the end of 2022. This leaves home values across Brisbane 27.9% higher than at the previous low in August 2020.

“Despite the large decline from peak, Brisbane maintains the third highest gain in value of the capital cities since the start of the pandemic,” Owen said.

However, it has some way to go before it can rival Sydney for home values: there is a $435,170 difference in median house values between the two cities.

Related: Australian Property Forecast: What’s In Store for 2024?

January 25: Sydney Homes Fall 10.9% In Value, However Pace of Declines Easing

The usually overheated Sydney property market bore the brunt of last year’s property value declines, with Domain research showing that housing values dropped by 10.9% in the harbour city and 5.9% in Melbourne.

Canberra and Brisbane house values fell by -6% and -1.1% respectively last year. Adelaide, meanwhile, was up by 10.2%—no doubt due to its lower house prices—and Perth home values increased by 5.7% for the year. Combined capital city house prices were down -5.% in 2022.

However, the December quarter was relatively mild compared to the September figures. Most notably, house prices in Sydney, Brisbane and Canberra saw an easing pace of quarterly decline in December, while Melbourne, Adelaide and Hobart stabilised with some minor growth, according to Domain chief of research and economics, Dr Nicola Powell.

Powell said: “The spring selling season bore the brunt of interest rate shocks and sky-high inflation levels. This is why the September quarter saw house prices fall at their fastest quarterly rate.”

Melbourne values grew by a subtle .7% in the December quarter, while Sydney slowed its pace of decline to -2.1%.

Powell said a tight supply of homes on the market was “helping to keep prices stable”, as sellers held off listing their homes until the full the housing market downturn and rate rises settled.

“Now in the December quarter, the data suggests that the peak rate of the quarterly decline has passed as buyers have had time to adjust to the new norm of rising debt cost and reduced borrowing capacity,” Powell said.

Based on calculations from Domain Home Loans, those with a $1 million mortgage are now paying almost $1800 more on their loan than this time last year due to the RBA hiking rates eight times in 2022.

Related: Australian Property Market Forecast: What’s In Store for 2024?

January 9: Australian home prices decline -8.40% in under nine months
Australian house prices are falling at record-breaking levels, posting a decline of -8.4% between May of last year and January 2023, according to fresh CoreLogic data.

The downturn surpasses the previous record when home values fell -8.38% between October 2017 and June 2019. As CoreLogic noted in a statement: “While the housing downturn between 2017 and 2019 lasted 20 months, the new record-breaking price falls have played out in less than nine months, with further falls expected in the months ahead.”

As CoreLogic’s head of research, Eliza Owen, said, the falls are due, in no small part, to the RBA’s bullish rate hiking spree.

“A 300-basis point increase in the underlying cash rate over just eight months has resulted in a rapid reduction in borrowing capacity, lowering the amount buyers can offer for homes,” Owen said in a statement.

“In addition to constrained borrowing capacity, higher interest costs may be dissuading potential buyers altogether.”

Owen also cited Australians historic levels of debt, with the latest Reserve Bank of Australia’s estimate of housing debt-to-income sitting at an eye-watering 188.5%. This is compounded by the fact that many Australians’ wages are going backwards in real terms.

Owen said: “A decade ago this figure was 162.0% and in 2002 the ratio was 130.2%. Higher household indebtedness may have increased the sensitivity of housing values to interest rate rises.”

The highest falls were predictably seen in Australia’s three largest cities, with Sydney falling -13%, Melbourne falling -8.6% and Brisbane coming off -10%. An average, Australia homes dropped an estimated $64,820 in value since May last year.

CoreLogic analyses detached houses, units and a combined dwellings index—that includes both houses and units—to determine its Daily Home Values Index.

January 5: Prices Fall 4.25% Since March 2022 Peak

Economists are expecting to see more price falls for national home prices in 2023 with hopes that positive demand effects will ease the downward trend.

According to the latest PropTrack Home Price Index, national home prices have now seen nine straight months of price declines, falling 4.25% below the peak from March 2022.

With the cash rate sitting at 3.10% after the RBA’s incessant rate rises, maximum borrowing capacities have already dropped by close to 30%, PropTrack senior economist Eleanor Creagh tells Forbes Advisor.

“The significant reduction in borrowing capacities implies further price falls,” Creagh explains.

“It will take time for higher interest rates to fully affect prices, so they are likely to continue to fall as interest rates continue to rise.”

And interest rates are expected to keep rising, with “at least one” more hike predicted in the foreseeable future, then “borrowing costs will continue to increase and maximum borrowing capacities will further reduce, shrinking buyers’ budgets and pushing home prices lower”.

Yet the downward pressure from rate rises can be countered to a degree, Creagh says, “by positive demand effects that stem from tight rental markets and rental price pressures, rebounding foreign migration, stronger wages growth, and over the long term, housing supply pressures”.

“In addition, if interest rates peak in 2023 as expected, price falls are likely to ease, with values stabilising as uncertainty reduces.”

December 13: Australian Property Market Still Has Significant “Downside Risk” In 2023

CoreLogic has released its annual Best of The Best Report, summarising the Australian Property Market’s key trends across the past 12 months as well as forecasting what the year ahead may look like.

Unsurprisingly, the outlook for 2023 isn’t all that positive. As CoreLogic explains, Australia’s property trends over the foreseeable future will largely be shaped by the RBA’s monetary policy movements.

Since the most recent rate rise statement outlined the expectation of further increases in the months ahead, it’s expected the same trend will continue to “put further downward pressure on property prices”, the CoreLogic report reads.

That is at least until the cash rate reaches it’s peak, which economists are forecasting will occur by mid-2023.

But the RBA isn’t the only influencing factor on the housing market.

“Aside from monetary policy, migration and rental trends could also see a lift in investor and first home buyer activity as housing values find a floor,” the Best of The Best Report explains.

However, the report also forecasts that while there was diminishing investor increase in 2022, this could increase in 2023—especially since “prospective investors could be positioned to take advantage of both high rental income and capital gains“.

Ultimately, CoreLogic predicts the 2023 housing market performance outlook to “continue to be a mix of headwinds and tailwinds”, with Australians facing yet another year of uncertainty.

December 5: Property Downturn “Is Not Severe”, SQM Research Claims

National residential property listings have risen across the month of November, as have national asking prices for combined dwellings. It’s data like this that is leaving some property experts feeling more positive about 2023.

The latest data from property research company, SQM Research, shows that new property listings increased by 2.4% in November when compared to October, reaching a total of 241,701 across the country.

Additionally, over the month to December 5, national asking prices rose by 1.3% for combined dwellings as property owners look to keep up with rising inflation. There’s been an 8.5% increase in the last 12 months. Capital city asking prices for combined dwellings, however, fell by 0.1% in the month to December 5, despite increasing overall by 0.5% in the last 12 months.

SQM Research managing director Louis Christopher says today’s numbers have confirmed his relatively positive outlook on housing for 2023.

“Listings are only 3.4% higher than 12 months ago, which is a small increase given the housing downturn,” he explains.

“This is somewhat masked by the fact we had a massive surge in property for sale on the end of lockdowns and other travel restrictions in 2021. However the marginal rise in old listings confirms this downturn is not severe.”

Christopher adds: “There is nothing in (these) numbers which change my mind on that”.

The largest monthly increases in property listings were in Hobart (9%), Adelaide (5.7%), Canberra (3.9%) and Melbourne (2.7%).

Additionally, over the past 12 months, Hobart has increased its property listings by 75.3%. Comparatively, Melbourne’s property listings have fallen -6.5% in the same period.

CoreLogic data also revealed that the combined capital cities saw 2506 homes taken to auction last week: the busiest week since mid-June.

However, as CoreLogics’ Head of Research, Eliza Owen, notes, it comes on the back of a lacklustre spring selling season.

“Spring came and went without the usual surge in listings,” Owen says.

“Instead of new listing campaigns rising from winter to spring, freshly listed properties fell nationally for the first time in at least 12 years.”

November 24: Markets Fall Beneath Million Dollar Mark as Rates Keep Rising

The number of Australian suburbs with a million-dollar median property value has shrunk significantly in the past six months, with the unsurprising culprit being the combination of rising inflation and the RBA’s consecutive–and ongoing–rate hikes.

CoreLogic analysed 3649 suburbs in both capital cities and regional dwellings, comparing the data to a data set taken six months ago in April 2022 when the RBA first raised rates.

The analysis showed that the median value of 169 suburbs across the nation have dropped below the million-dollar mark, while only seven suburbs have increased in value to seven figures and above.

The most significant drop in million-dollar suburbs was seen in Greater Sydney, where 64 suburbs fell below seven figures. This was then followed by the rest of New South Wales, which saw a fall in value to under one million dollars for 30 suburbs.

Greater Melbourne and Greater Brisbane were next in line with the greatest change since April 2022, showing a decline under a million-dollar median in 28 and 23 suburbs respectively.

Despite the recent Brisbane drop, CoreLogic Research Director Tim Lawless says Greater Sydney and Greater Melbourne are the only capitals that have seen a reduction in the number of million-dollar suburbs in comparison to October last year.

In contrast, of the seven suburbs which rose above the million-dollar median mark in the past six months, there were two in both Greater Perth and Greater Adelaide, while two others were in NSW and one in Victoria.

Across the nation, there are still 836 suburbs remaining with a consistent median property value over $1 million in comparison to the previous data set. 347 of such are in Sydney, with 117 in Melbourne.

Despite the decline in value, CoreLogic says Australia has more than double its number of suburbs with median values of $1 million or more when compared with the onset of COVID-19 in March 2020. At that time, there were only 393 million-dollar suburbs.

Yet the current post-pandemic weakness is forecast to continue, thanks to an expected seventh consecutive rate rise anticipated in December making it “more than likely the million-dollar club will continue to shrink”, according to Lawless.

November 15: Gold and Sunshine Coasts Record Fall in Values

They were the towns that boomed during the pandemic lockdowns: lifestyle destinations where the prices of housing was pushed up as refugees from Melbourne and other parts of Australia inundated the idyls.

Now, according to CoreLogic data, the tide has started to turn, with many of the regional centres that experienced the fastest growth now among the fastest declining markets over the three months to October.

CoreLogic’s Regional Market Update analysed Australia’s 25 largest non-capital city regions, showing house values in six of the most popular lifestyle markets recorded falls of 6% or more last quarter. This included Richmond-Tweed (-11.7%), Southern Highlands and Shoalhaven (-7.1%), Sunshine Coast (-7.1%), Gold Coast (-6.4%), Illawarra (-6.1%) and Newcastle and Lake Macquarie (-6.0%).

Regional NSW fared poorly on a range of benchmarks, with Southern Highlands and Shoalhaven notching up the largest decline in sales volumes (-27.5%) and the highest vendor discounting rate (-4.9%).

CoreLogic Economist Kaytlin Ezzy said more than 87% of the regional house and unit markets analysed recorded a quarterly decline in values.

“Consecutive interest rate rises, persistently high inflation, and waning consumer sentiment saw the pace of value declines accelerate across regional Australian property markets,” Ezzy said.

It is unsurprising the flood-ravaged Richmond-Tweed region recorded the strongest decline in house values, Ezzy noted.

“Throughout the COVID period, values skyrocketed, rising more than 50% and taking the median house value to more than $1.1 million. However the impact of this year’s floods, coupled with seven consecutive rate rises, has seen house values fall in the region by nearly -16% since April.”

November 1: Regions, as well as Cities, Post Price Declines in October

Properties in regional towns, as well as capital cities, have recorded a drop in property prices for the month of October, as interest rate rises flow through to Australia’s highly leveraged property market.

According to the most recent CoreLogic figures, the national Home Value Index (HVI) has posted six months of declines, with values falling a further -1.2% in October.

Across the capital cities the month-on-month decline ranged from a -2.0% fall in Brisbane to a -0.2% drop in Perth. Melbourne fell -.8%, Sydney dropped by -1.3%, while Hobart fell -1.1%. Across the regions, monthly falls of more than -1% were recorded in regional NSW (-1.7%), regional Victoria (-1.4%) and regional Queensland (-1.3%). Meanwhile, regional South Australia was largely resilient.

Source: CoreLogic Property Values for October

During the Covid-19 pandemic and lockdowns, many regional towns notched up double-digit price growth as employees swapped commuting-into-the-city for working-from-anywhere. The drop in regional values reflects the softening of this boom, however, prices in the regions remain above pre-Covid levels.

The good news is that the rate of decline is decreasing across Australia’s cities: easing from -1.6% drop in August, -1.4% in September and now -1.2% in October.

However, CoreLogic’s Research Director, Tim Lawless, said this trend could reverse.

“Despite the easing in the pace of decline, with Australian borrowers facing the double whammy of further interest rate hikes along with persistently high and rising inflation, there is a genuine risk we could see the rate of decline re-accelerate as interest rates rise further and household balance sheets become more thinly stretched,” he says.

“To-date, the housing downturn has remained orderly, at least in the context of the significant upswing in values. This is supported by a below-average flow of new listings that is keeping overall inventory levels contained. There’s also tight labour market conditions, an accrual of borrower savings and a larger than normal cohort of fixed-interest rate borrowers, who have so far been insulated from the rapid rise in interest rates.”

Once the full rate hike is passed on to mortgage rates, the average variable mortgage rate for a new owner occupier loan will reach approximately 4.96%, up from the April low of 2.41%, according to CoreLogic. Based on a $750,000 loan amount and repayments on a 30-year loan term, the rate hiking cycle to date has added roughly $1079 to monthly mortgage repayments.

While more homeowners are likely to feel the impact of mortgage stress, we are unlkely to see forced sales of homes as unemployment remains historically low, Lawless notes.

“Although interest rates are rising at the fastest pace since the early 1990s, we aren’t seeing any signs of panicked selling or forced sales appearing in our monitoring of listings data,” he says.

CoreLogic’s head of Australian research, Eliza Owen, told ABC news it was “too early” to declare the worst of the home price falls as over.

Related: Bad News on the Budget? Australians will Feel the Pinch for Some Time

October 24: Interest Rate Hikes Accelerate Pace of Decline

The effect of interest rates are starting to be felt across Sydney’s highly leveraged property market with home values down -10.1% in eight months, CoreLogic’s daily home value index shows.

The double-digit drop equates to roughly $116,500 lost in Sydney property values since the city hit its most recent peak value in February of this year. The RBA has hiked the cash rate by 2.5% over the past six months: from .1% at the beginning of the year to 2.6% as of October, prompting concerns in some quarters that it may go too far.

CoreLogic notes that Sydney’s decline comes after a growth of 27.9% or roughly $252,900 in the city’s property values from the “COVID-trough to peak”.

Sydney values are now down –9.5% since May 3 and -10.1% since peaking on 13 February this year.

It is unsurprising that Sydney should feel the heat owing to its status as Australia’s most expensive capital city housing market, which makes it more vulnerable to interest rate rises.

“Although Sydney’s housing values were already in decline when the rate hiking cycle began, the pace of decline accelerated sharply following the first interest rate increase in May,” CoreLogic research director Tim Lawless said.

“Despite the -10.1% decline so far, Sydney home values still have a way to go before wiping out the capital gains accrued over the recent growth cycle. Home values would need to fall a further -11.4% to get back to the levels seen at the onset of COVID.”

The CoreLogic figures show Melbourne’s values are second to Sydney, falling -6.4% since January 14 while Brisbane is down -6.1 % since its June peak. Meanwhile, Hobart and Canberra are down -4.7% and -4.4% respectively since their month-end peaks, and Adelaide and Perth have both declined less than -1% since their highs.

Darwin is the only capital city where housing values haven’t started to fall, although CoreLogic notes that dwelling values remain -10.1% below the record highs of 2014.

However, there was some good news for Sydney property owners, according to Lawless: “The rate of decline has continued to moderate through October, improving from a -2.2% decline over the four-week period ending 3 September to -1.3% over the most recent four-week period ending 23 October.”

Meanwhile, a report in The Age and SMH, revealed that internal research by the RBA has found that property prices could fall as much as 20%.

Related: Guide to Buying an Investment Property in Australia

October 18: House and unit values fall across our capital cities
The property market continues to decline, with four in five houses and units in our capital city suburbs recording a fall in values over the past quarter, according to CoreLogic research.

Out of the 3027 house and unit markets analysed, 79.5% (being 2405 markets) experienced a fall in value–an increase from the 1293 markets recording a decline in Q2.

With the data showing a steep decline, it’s evident that the property industry is feeling the effects of the RBA’s successive cash rate hikes. Rates have risen by 2.5% this year so far.

“This analysis shows the effect of the three 50 basis point rate hikes through the September quarter, plus the lagged impact of the first two hikes (totalling 75 basis points) in May and June, so it’s not surprising to see significantly more markets recording a decline in value,” CoreLogic economist Kaitlin Ezzy explained.

State-by-state house and unit values

In Sydney, all 563 suburbs analysed saw house values fall over Q3. For units, only 13 of the 304 markets analsyed recorded a rise in value.

Melbourne saw a similar trend, with all 285 house markets recording a quarterly decline, while 88.4% of the 251 unit markets also recorded a fall in values.

Up north in Brisbane, property value growth conditions fell into negative territory. Only 5.7% of suburbs analysed saw a rise in value in Q3, while 46.7% of the 169 unit markets analysed recorded a quarterly decline–up from the 5.6% which recorded a decline in June.

Meanwhile, Adelaide has seen 48% of the 302 house markets fall in value over the quarter along with 11.6% of the 95 unit markets. Adelaide’s unit market still remains the strongest out of the capitals, with quarterly growth in unit values at 2.4%.

More than half (53.1%) of the 288 house markets analysed in Perth recorded a decline over the quarter, while units values declined in 37 of the 95 unit markets analysed.

Hobart is the only Australian capital city to record a decline in all house and unit markets analysed over the quarter, showing a -4.3% decline in house values and a -5.3% decline in unit values, while Darwin was the only capital city to see both house and unit values increase over the quarter at a 1.4% increase each.

Lastly, Canberra saw all of its 85 housing markets record a decline over Q3, with 40 of its 47 unit markets also reporting a decline.

October 4: Capital cities post property price declines in September
Australian property prices have fallen by 1.4% in September, as the market continues to cool in response to rising interest rates and higher living costs.

According to data released by CoreLogic, the decline was a slight improvement on August price falls of 1.6% in August.

“The loss of momentum in the pace of value decline was evident across most of the capital cities and broad rest-of-state regions, with a few exceptions,” noted CoreLogic’s research director, Tim Lawless.

On the east coast of Australia, Sydney property values fell by 1.8% in September, Melbourne declined by 1.1% and Brisbane was down 1.7%. Hobart fell by 1.4%.

Meanwhile, Adelaide and Perth recorded softer declines of 0.2% and 0.4% respectively in September.

As Mr Lawless noted, Darwin is the only capital city where housing values haven’t trended lower. He said it was too soon to say whether the decline had bottomed out.

“It’s possible we have seen the initial shock of a rapid rise in interest rates pass through the market and most borrowers and prospective home buyers have now ‘priced in’ further rate hikes,” he said.

“However, if interest rates continue to rise as rapidly as they have since May, we could see the rate of decline in housing values accelerate once again.”

Houses lost more value than apartments, declining by 1.5% in September compared to 0.7% for units.

Renters continue to feel the brunt of the movements within the housing market, with capital city rents up 16.5% since the pandemic began in early 2020. Regional rents are up by roughly one quarter.

August 15: The Australian Property Market is falling: should we be worried
The most important fact in the economy at the moment is not record low unemployment or even record high inflation of 6.1%.

It is housing prices, which, as the below chart shows, are suddenly falling. The RBA’s aggressive interest rate rises have made mortgages much more expensive and people are reacting by retreating from the housing market, especially the Sydney housing market.

The Sydney property market was the first to tumble. It was also the first place to record house price falls in 2017-18, the last time the Australian property market went into a correction. Melbourne is hot on Sydney’s heels. In both cities the house price falls are the biggest in the expensive segment of the market, which is the exact pattern we saw last time: falls began in the priciest parts of the market and then spread.

As CoreLogic research director Tim Lawless said in May this year: “Historically more expensive housing markets tend to lead the upswing, but also lead the downturn. If we get the same pattern as last time, falling housing prices will spread from expensive suburbs in Melbourne and Sydney across the country.”

Australian property prices matter

It would be easy to get the wrong impression about property prices. They can be framed by some commentators as important only insofar as they are socially divisive, providing fodder for population debates or the generation wars, pitting baby boomers against millennials, who complain they are priced out of the market.

But there’s more to house prices than the headlines let on. They are a giant moving part in our economy, and the first to be hit by any changes in interest rates. As a result, the RBA must watch property prices intently because of the way it extends influence over other moving parts of the economy.

Recently, new housing loans have skyrocketed in size, meaning new borrowers are especially sensitive to rising interest rates. As the next chart shows, loan sizes have changed dramatically in the last two years as interest rates plunged. The average owner-occupier home loan starts at more than half a million dollars in Australia now, thanks mostly to Sydney’s incredible property market:

It is these new borrowers that have the most left to pay off, and will suffer the most from rising interest rates. What’s more, new borrowers who had a minimal deposit have the highest chance of ending up under water when house prices fall, i.e. owing the bank more than the house is worth. Even if you had a 20% deposit, if the market value of your new home falls by over 20%, you’re under water. And some purchasers start with even smaller deposits.

Australians are inclined to keep paying off their home loans when they owe more than the house is worth, RBA research has found. We don’t tend to default, unlike US borrowers when they get into trouble. This means the banks are fairly safe even if house prices fall. With one exception: If there’s also a big economic calamity that sends a lot of people out of work, that can change Australian borrowers’ tendency to keep paying down the mortgage.

The combination of being under water and losing your job is enough to trigger defaults. This is the other key reason house prices matter so much.

Falling house prices can trip up the whole economy
The domestic economy is made up of 24% investment (buying machines, putting up new warehouses, laying new roads) and 76% consumption (paying dentists and lawyers, paying for cleaning and deliveries, plus consumables like fuel, food, etc) . House prices are an important driver of both, but they drive consumption first and fastest.

There are two main ways this works

1. Consumption effect. Property trading causes consumption. When you sell a property you might pay a painter and a landscaper to spruce things up. When you buy a property, you pay real estate agents, mortgage brokers, conveyancers and moving companies. Then you will often get some tradies in to fix a few little aspects of your new place. And finally you will often get some new furniture. When a lot of houses trade hands it makes the cash registers ring at Harvey Norman.

When property prices are rising, people trade more properties: sellers are keen to come to the market, places stay on the market for a short period, and people want to buy before prices go up more. The reverse is true when house prices are falling. So rising house prices cause consumption in a very direct way.

However, while the consumption impact is strong, it only applies to the small share of people who buy or sell a house each year. There’s another, even bigger effect, called the wealth effect, that applies more broadly.

2. Wealth effect. When people’s homes go up in value, they feel richer, and so spend more. The effect is larger the more wealth people have, and so the wealth effect applies most strongly to older households. They’ve been in luck recently, but that luck is now turning.

The RBA is, as I mentioned earlier, terrified of how falling house prices can crash an economy. A big downturn in house prices causes a big wealth effect that squeezes consumption. That in turn can make unemployment rise, which, of course, makes it even harder for people to pay back their home loans.

Interest Rate Rises: How Much is Too Much?

The interest rate hikes the RBA is unleashing at the moment need to be very carefully calibrated. The perfect amount of rate hikes will cause inflation to retreat and house prices to merely modulate. But too much could cause house prices to spiral downward and take the economy with it in a descent that is hard to reverse. Especially when the Federal Government has a lot of debt and is less likely to come to the rescue with spending.

Interest rate hikes take a long time to have their full effect on the economy, so this year’s cuts will still be dampening things in 2023. Will the RBA go too far and inadvertently crush the Australian property market and the economy with it? Time will tell.

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