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Home Prices Continue Their Decline Across the Country

Written by Rebecca Gillis
November 14, 2022
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Property prices across the country fell another 1.2% last month, marking six months of consecutive declines for homeowners.

This month it was Brisbane that experienced the largest decline, with values down 2%, followed by Sydney at 1.3% and Hobart with a 1.1% fall. Melbourne and Darwin both saw a fall of 0.8% while values in Canberra dropped 1%. Falls were less severe in Adelaide and Perth with just a 0.3% and 0.9% drop respectively.

CoreLogic's Research Director, Tim Lawless said it is probably still too early to claim the worst of the decline phase is over.

"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 genuine risk we could see the rate of decline re-accelerate as interest rates rise further and household balance sheets become more thinly stretched," Mr Lawless.

"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."

Following a 25.5% rise through the recent upswing, housing values have fallen -6.5% across the major capital cities. Sydney home values are down -10.2% since peaking in January (after a 27.7% rise) and Melbourne values down -6.4% since February (after rising 17.3%).

House values have continued to fall at a faster rate than unit values across most regions with capital city house values down -1.2% in October compared with a -0.7% decline in unit values.

Mr Lawless said the smaller decline in values across the unit sector can be attributed to the more affordable price points across the medium to high density sector.

"The gap between median house and unit values increased to record levels through the COVID upswing," he said.

"With borrowing capacity being hit hard as interest rates rise, it's likely more housing demand has been diverted towards more affordable sectors of the market."

Change in dwellings - index results as at 31 October, 2022

Source: CoreLogic

Listings still tight

On the demand side, the estimated number of home sales has held reasonably firm through the first two months of spring. Capital city home sales were -16.6% lower than a year ago and 3.8% above the previous five-year average for this time of the year.

"The number of home sales is well down from the highs of late last year, however the fact that sales activity is still above the five-year average over the past three months reflects a base level of demand for housing," Mr Lawless said.

"Housing finance data shows subsequent buyers, such as upgraders, down sizers or movers, have been the most resilient sector of the market since interest rates started to rise.

"As interest rates rise further, it's likely sales activity will also trend lower as borrowing capacity is reduced."

The flow of new listings started to trend higher in October, but the traditional spring selling season remains well below levels at the same time last year and relative to the previous five-year average. Over the four weeks ending October 30th, the number of newly listed capital city dwellings was tracking -25.2% below a year ago and almost -19% below the previous five-year average. The trend in total advertised listings is holding relatively firm, tracking -5.0% below levels a year ago and -18.2% below the previous five-year average.

Rental growth slowing

Meanwhile, rental growth continues to slow down, with national rents rising another 0.6% in October, led by 1.1% rise in unit rents while house rents increased by 0.5%.

Mr Lawless said a gradual slowdown in rental growth in the face of low vacancy rates could be an early sign that renters are reaching an affordability ceiling.

"Since the onset of COVID, capital city rents have risen 17.7% and regional rents are up 25.5%" he said.

"Although rents are likely to continue to rise, 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."

Outlook remains soft

Mr Lawless said housing values are likely to continue trending lower until interest rates find a ceiling.

"The bad news for homeowners is most economists have recently revised their cash rate forecasts upwards due to higher than expected inflation outcomes," he said.

"Although housing risks remain skewed to the downside, there are a few tailwinds that should help to keep this downturn orderly and stave off a material rise in distressed listings.

Factors include tight inventory, strong employment and overseas migration, should limit any extreme falls in house prices.

Rebecca Gillis

Rebecca works in the Digital Marketing field after graduating from James Cook University with a Bachelor of Business, majoring in both Marketing & Events Management. She has recently moved to the Gold Coast and enjoys getting outdoors to make the most of the great weather.

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