Property prices have been weakening in most markets around the country, however, the rate of decline is now starting to slow.

According to CoreLogic, property prices fell 1% in January, slightly less than the 1.1% fall in December.

Every capital city posted a decline in property values through the month of January, led by Hobart (-1.7%) and Brisbane (-1.4%), while the smallest drops were recorded in Perth (-0.3%) and Darwin (-0.1%).

The most noticeable falls have been seen across the premium end of the housing market, where the country’s most expensive properties have led both the recent upswing as well as the current downturn.

Sydney’s median home price value below $1 million for the first time since March 2021, falling -1.2% in January, an improvement on December’s -1.4% decline.

Since their respective peaks, Sydney (-13.8%), Brisbane (-10.8% ) and Hobart (-10.8%) have so far registered the largest declines which are at or near record levels.

Source: CoreLogic

CoreLogic Research Director, Tim Lawless said the record declines in home values followed a record upswing, both in magnitude and speed.

“The national home value index was up a stunning 28.6% in the space of just 19 months,” Mr Lawless said.

“Despite the recent sharp drop in values, every capital city and rest-of-state region is still recording home values above pre-pandemic levels, although Melbourne’s index would only need to fall a further -0.4% before equaling the March 2020 reading.”

Regional housing values also continued to record a milder decline than their capital city counterparts, falling 0.8% last month.

Mr Lawless said regional areas have performed better than the city throughout the last housing cycle.

“Despite easing rates of internal migration and a partial erosion of the pre-pandemic affordability advantage, regional housing values are holding up better than capital city markets,” he said.

"This will be an interesting trend to watch over the longer term, but at the moment it seems regional housing markets have seen a structural shift in the underlying demand profile.

“With more Australians willing to base themselves outside of the capital cities and remote working remaining a viable option across some sectors of the labour force, it’s unlikely we’ll see a mass exodus from regional markets.”

Housing demand falls away

Capital city dwelling sales over the past three months were -29.4% lower compared to the same period in 2022 and -11.5% below the previous five-year average.

Sydney (-40.6%), Melbourne (-39.8%) and Brisbane (-36.5%) have had the largest quarterly drop in sales relative to the same period last year.

Mr Lawless said it’s unlikely listing and purchasing activity will return to average levels until consumer sentiment starts to improve.

“There is a strong relationship between consumer attitudes and the number of homes sales,” he said.

“With sentiment remaining around recessionary lows, it’s harder for consumers to make high commitment decisions such as buying or selling a home.

“Until Australians have a higher level of confidence with regards to their household finances and the outlook for the economy, it's likely they will continue to delay major financial decisions.”

Rents are tight

Rental growth picked up again in January as record-low vacancy rates and the surge in overseas migrants continues to put rental markets under extreme pressure.

Mr Lawless said tenants are now chasing more affordable options.

“After recording substantially larger increases through the worst of the pandemic, the rate of growth in house rents is generally easing in most regions, reflecting a transition of demand towards more affordable, higher density types of rental stock,” he said.

“In contrast, unit rents have seen a surge in rental growth over the past year.

“This can be attributed to a combination of affordability pressures driving more rental demand towards cheaper rental options, and a possible reversal in rental preferences as tenants once again seek out housing options closer to centres of amenity such as the CBD and transport hubs.”

Rates to determine prices

Once interest rates move through a peak, it’s likely that housing values will stabilise.

Mr Lawless said there may be a few months’ lag before declines flatten out, and the market would need some form of stimulus before a new growth cycle commenced.

There’s also some downside risk from the large number of fixed-rate mortgages due to expire later this year.

He said two-thirds of fixed-rate home loans, which comprise a substantially larger portion of the loan book than historically normal, will expire in 2023, with many moving from interest rates around 2% to a rate closer to 6%.

“It’s likely mortgage arrears will rise from last year’s record lows, but the risk of a material increase in mortgage arrears or defaults should be minimised as long as labour markets remain tight,” Mr Lawless said.

“Although labour markets are expected to loosen throughout 2023, it’s unlikely the unemployment rate will rise above long-term average levels.”

Finally, low stock levels will also be a factor that helps keep price falls contained Mr Lawless said.

“Such low advertised supply has arguably helped to keep a lid on value declines, but a lift in supply without a commensurate rise in demand could prolong the downturn,” he said.