The rate of property price falls are starting to slow down across the country despite interest rates continuing to increase.
According to CoreLogic, national property prices slipped 1.4% in September, a slight reprieve from the 1.6% fall in August.
Sydney continues to be the hardest-hit capital market, with values falling 1.8% in September, followed by Brisbane at 1.7%. Hobart prices dropped 1.4% while Melbourne fell 1.1% and Canberra 1.6%.
Notably, both Perth and Adelaide markets, which has been holding up well, have now also started to trend lower, dropping 0.4%, and 0.2% respectively.
CoreLogic's research director, Tim Lawless said it is too early to suggest the market has moved through the worst of the downturn.
"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." Mr Lawless 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."
Mr Lawless said the slowdown in the rate of decline came alongside an improvement in other indicators. "Auction clearance rates also trended upwards, albeit subtly, in September and consumer sentiment nudged a little higher as well on the back of strong labour market conditions," he said.
"We've also seen the flow of fresh listings continue to slide through the first month of Spring, which is uncommon for this time of year."
After rising 25.5% over the past few years, housing values across the capital cities are now 5.5% below the recent peak.
Regional markets which recorded stronger growth through the upswing (41.6%) are now seeing values drop also, down -3.6% through to the end of September.
Most cities continue to see a substantial buffer between current housing values and where they were at the onset on COVID-19 in March 2020.
At the combined capital city level, housing values would need to fall a further 13.5% before wiping out the gains of the recent growth cycle.
Mr Lawless said there are still very different market conditions across different areas of the country.
"We are still seeing some resilience to value falls around the more affordable areas of Adelaide and Perth, as well as some regional markets associated with agriculture, mining, and tourism," he said.
The largest falls have been concentrated in areas of Sydney's Northern beaches, including Warringah, Pittwater, and Manly, where housing values are down at least 14.5% since moving through a peak in early 2022, as well as flood-affected areas across Richmond - Tweed.
"These areas saw housing values rise between 38% and 62% through the growth cycle, so most home owners are still well ahead in terms of equity in their home," Mr Lawless said.
Mr Lawless said one key reason for the slowing falls in property prices is because listings haven't continued to surge.
The number of new listings added to capital city housing markets over the four weeks ending September 25th was 12% lower than the same period a year ago, and now 10% below the previous five-year average.
Darwin and Canberra are the only exceptions, with both cities recording higher listings over the past four weeks.
"It seems prospective vendors are prepared to wait out the housing downturn, rather than try to sell under more challenging market conditions," Mr Lawless said.
"We haven't seen any evidence of distressed sales or panicked selling through the downturn to date; in fact, it has been the opposite, with the trend in newly listed properties continuing to diminish at a time when freshly advertised stock levels would normally be moving through a seasonal ramp up."
While the flow of new listings is seasonally low, total advertised inventory is holding firm or rising in most regions. Across the combined capitals, total advertised stock levels are tracking 7% higher than the same time last year, but are still 15% below the previous five-year average.
Higher than average stock levels in some cities is more a reflection of less demand, than too much supply being added to the market, according to Mr Lawless.
Meanwhile, despite the tight vacancy rates around the country, the national rental index increased by only 0.6% in September, the lowest monthly rise in rents since December 2021.
According to Mr Lawless, the slowdown in rental growth is a little surprising given rental vacancy rates remain so low and overseas migration is ramping up, although there has been a subtle uptick in vacancy rates across some regions.
"A gradual slowdown in rental growth in the face of such low vacancy rates could be an early sign that renters are reaching their affordability ceiling," he said.
Since the onset of COVID, capital city rents have risen 16.5% and regional rents are up 25.1%.
"It's likely renters will be progressively seeking rental options across the medium to high density sector, where renting is cheaper, or maximising the number of people in the tenancy in an effort to spread higher rental costs across a larger household."
Further evidence of a shift of rental demand towards higher density options can be seen in the higher growth rate of uni rents over house rents.
"A material rise in rental supply seems a long way off, considering private sector investment activity is trending lower and a larger than normal portion of for sale listings are investor-owned properties," Mr Lawless said.
Mr Lawless said going forward, the most important factor influencing housing market will be the trajectory of interest rates, which remains highly uncertain.
"The cash rate has surged 225 basis points higher through the tightening cycle to-date; interest rates have not risen at this fast a pace since 1994, when households were arguably less sensitive to a sharp rise in the cost of debt," he said.
"In the September quarter in '94, the ratio of housing debt to household disposable income was just 46.8. The impact of a higher cost of debt is far more meaningful now, with a housing debt to household income ratio of 143.7 recorded in March 2022."
Financial markets are now pricing in a peak in the cash rate around 4.1% between June and August of next year, while private sector economists are generally less bearish, with Bloomberg recently reporting a median forecast of 3.35% as the peak cash rate in the first quarter of next year.
Once interest rates stabilise, housing prices are likely to find a floor. Considering most economists are forecasting rates to peak through the first quarter of next year, the coming months are likely to feature further declines in home values.
"We will be watching for any signs of market distress as the dual impact of higher interest rates and high inflation impact household budgets," Mr Lawless said.
"To date, the flow of new 'for sale' listings has actually trended lower as vendors retreat to the sidelines, a good indicator that home owner are weathering the downturn."