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Australia's housing market decline has spread across all capital cities and most regional areas, with a leading index showing the biggest monthly decline in nearly four decades.
Key points:
- CoreLogic's index shows home values falling 1.6 per cent in August
- The rival PropTrack index recorded a smaller 0.4 per cent fall
- Regional markets have started falling, with almost the whole of the country now off its peak value
CoreLogic's home value index slumped 1.6 per cent in August, the biggest national monthly decline since 1983.
A separate index, using a different methodology, by rival data provider PropTrack had prices falling a much smaller 0.4 per cent last month, but both indices concur that nearly all cities and regions in Australia are now in a property downturn.
CoreLogic's data shows falls across all capital cities, except for Darwin, which recorded a 0.9 per cent rise in August.
"It's just a sign of how extraordinary the increases in interest rates have been, as well as buyers being dissuaded because of higher cost of living and lower consumer sentiment," CoreLogic's Eliza Owen told The Business.
"It's also important to remember that this was an extremely large upswing in property values that increased by about 28 per cent over the course of two years."
The biggest falls continued to be in Sydney, where prices dropped 2.3 per cent last month, while Brisbane (-1.8 per cent), Hobart (-1.7 per cent) and Canberra (-1.7 per cent) had the next largest falls.
Prices in Perth (-0.2 per cent) and Adelaide (-0.1 per cent) edged only slightly lower, while Melbourne recorded a further 1.2 per cent slide.
Regional reversal
Regional areas have also begun to slide quite steeply, with CoreLogic recording a 1.5 per cent fall outside the capitals.
"That's much stronger than what we saw in previous months and it's being led by some of the most popular lifestyle areas in the regions, like Newcastle and the Richmond-Tweed area," Ms Owen said.
PropTrack put the regional fall at just 0.3 per cent last month and 1.2 per cent over the past three, but that is still enough to be the biggest quarterly decline in its index since 2011.
CoreLogic and PropTrack both agree that regional South Australia is at a peak price, with Adelaide only just off, while regional Tasmania is also considered at a record high by the latter data provider but not the former.
According to CoreLogic, Sydney has seen the biggest recent decline from its COVID peak, of 7.4 per cent since January 2022, with Melbourne down 4.6 per cent.
Even though Darwin has remained strong recently, homes there are still more than 10 per cent down from their peak value reached in May 2014.
Risk of a 30 per cent price crash
AMP Capital chief economist Shane Oliver believes that this decline may mark the end of a quarter-of-a-century house price boom.
"Residential property price downturns in the last 25 years have mostly been mild, with prices falling less than 10 per cent, and brief, with prices quickly rebounding to new record highs as rates fell to new lows," he observed.
"This cycle may be different – both in terms of being deeper and taking longer to recover – thanks to a combination of high household debt levels, high home price to income levels and an end in the long-term downtrend in interest rates."
Dr Oliver warned that prices probably still have a long way to fall after last month's steep drop.
"Increased listings in the spring selling season will likely add to pressure on prices and a surge in fixed rate loan expiries next year risks driving a sharp rise in distressed selling (as up to a quarter of home borrowers roll over into much higher mortgage rates), which will further add to downwards pressure on prices," he noted.
"Assuming the cash rate tops out around 2.6 per cent early next year then average prices are likely to fall 15-20 per cent top to bottom, of which we have so far seen 3.5 per cent, with the low likely being reached in the second half of next year after interest rates peak and start to fall back.
"The main downside risk to our forecasts would be if the cash rate is raised to the 4 per cent level the money market is assuming – this would more than double household interest payments and push total mortgage repayments to record highs relative to incomes and likely drive a 30 per cent or so fall in prices."
Home lending slides
Lending figures released on Thursday by the Australian Bureau of Statistics also indicate that the housing downturn has some way to run.
Excluding refinancing, home loan commitments dropped 8.5 per cent to $28.4 billion in July, with investor loans slumping 11.2 per cent and owner-occupier lending by 7 per cent, including a 10.7 per cent drop in the number of first home buyer loans.
Maree Kilroy from BIS Oxford Economics said the overall drop was historically significant.
"This was the second-biggest monthly fall over the past two decades. The largest decline was at the onset of the pandemic in May 2020," she noted.
However, ABS head of finance and wealth Katherine Keenan observed that the value of loan commitments remained significantly higher than before the pandemic.
"Owner occupier loans in July 2022 were 40 per cent higher than February 2020, while investor loans were 78 per cent higher," she noted.
Desirable properties still selling
While prices are falling fast pretty much across the board, it is not yet stopping homes from changing hands.
At an auction in Melbourne last weekend, a large crowd gathered to watch half a dozen bidders compete for a renovated four-bedroom house in the suburb of Maribyrnong, which is just over 10 kilometres from the city centre.
Before the auction, bidders the ABC spoke to were mostly undeterred by forecasts of rising interest rates and falling house prices.
"It is definitely a concern but I think we are better placed, so I'm happy that we can afford [to buy]," said bidder Rohini, who is looking to upgrade her family home.
"You have a beautiful river and you can see greenery all around, it's a happening spot – so why not?"
In the end, the auction was a contest between two other bidders and the property sold for $1,605,000, which was about $200,000 above the reserve, to an investor who lives nearby.
"Anything that's ready to move into with family accommodation is still going almost as well as what we were seeing six to 12 months ago – this falls into that category," said Patrick Till, a real estate agent and auctioneer at Nelson Alexander.
Would-be buyers cheer falling prices
The start of house price declines in Adelaide are a positive for Sally Probert.
"I'd certainly welcome it," Ms Probert said.
"Personally I am a little bit sceptical. I don't think they'll fall too much."
The first-home buyer has been looking for a property for two years and, in that time, she has watched prices skyrocket.
"An example is when I first moved over two years ago, I looked at a townhouse in a nice little complex and wasn't successful, and it ended up going for about $495,000," Mr Probert said.
"Then, not even 12 months later, almost the exact same townhouse in the exact complex when in the mid-$600,000s."
Ms Probert's mortgage broker Belinda Sugars from Mortgage Choice said, for now at least, Adelaide's property market remained strong.
"The buyers are still having to pay top dollar, there are plenty of offers for one property. So it's a seller's market, no question about that," she said.
But Ms Sugars said the higher serviceability buffers imposed by banks on home loan applicants due to rising interest rates were starting to reduce borrowing capacity.
"At the top end it could be $100,000 to $150,000 that they [buyers] have got to drop back," Ms Sugars said.
"But we're pretty conservative in Adelaide with how high we go when we purchase a property. They're not looking for the biggest and best, they want to be getting something manageable."
Eliza Owen said falling home prices were not unmitigated good news for would-be buyers, as they are likely to result in a drop in the number of properties put up for sale over time.
"Vendors aren't as inclined to sell their property as prices decline," she said.
"So that means the rate at which new stock hits the market is starting to slow down."
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