Australia’s two largest capital cities have both seen property prices decline the last month, dragging national house prices lower.

According to the latest data from CoreLogic, national property prices fell -0.6% in June, led lower by falls in Sydney (-1.6%) and Melbourne (-1.1%).

Hobart was the only other capital city to record a fall in home prices with a -0.2% decline, while Brisbane (0.1%), Canberra (0.3%) and Perth (0.4%) all saw minimal growth.

Adelaide continues to be the strongest housing market in the country, with values increasing 1.3% over the month of June.

Source: CoreLogic

Values in regional Australia have also started to slow down after a record run of growth, with prices up just 0.1% for the month.

According to CoreLogic, every capital city and broad rest of state region is now well past their peak rate of growth as trend rates eased across the remaining markets.

CoreLogic Research Director, Tim Lawless, said the housing market’s sharper reduction in growth coincides with the May cash rate hike, surging inflation and low consumer sentiment.

“Housing value growth has been easing since moving through a peak in March last year, when early drivers of the slowdown included rising fixed term mortgage rates, an expiry of fiscal support, a trend towards lower consumer sentiment, affordability challenges and tighter credit conditions,” Mr Lawless said.

“More recently, surging inflation and a rapidly rising cash rate have added further momentum to the downwards trend. Since the initial cash rate hike on May 5, most housing markets around the country have seen a sharper reduction in the rate of growth.

“Considering inflation is likely to remain stubbornly high for some time, and interest rates are expected to rise substantially in response, it’s likely the rate of decline in housing values will continue to gather steam and become more widespread.”

Buyer's Market

After what’s been a long period of time where sellers have been in control, markets are now starting to come back to favour buyers.

According to CoreLogic, national advertised stock levels remain -7.4% lower than 2021.

In Sydney and Melbourne, total advertised supply is now 7-8% above the levels recorded a year ago and well above the five-year average.

Hobart has seen advertised stock levels jump 48.4% higher relative to last year and inventory is 20.7% higher in Canberra.

In Adelaide, where housing conditions remain quite strong, advertised stock levels are still -16.9% lower than last year and almost -40% below the five-year average. Brisbane (-14.9%) and Perth (-16.2%) are also showing low advertised stock levels relative to this time last year.

Mr Lawless said the rise in advertised supply across some markets is mostly due to a slowdown from buyers.

“Estimated transactions in Sydney throughout the June quarter were -36.7% lower than a year ago while Melbourne is down -18.3%,” he said.

“At the same time, the flow of new listings added to the market is falling as selling conditions becoming more challenging and listings move into a seasonal lull."

“We aren’t seeing any signs of panicked selling as housing conditions cool, in fact the trend is the opposite, with the flow of new listings to the market slowing.”

Source: CoreLogic

Rents Still High

Despite a slowdown in transactions, rental markets remain extremely tight around the country, with rents consistently rising.

Nationally, rents increased 0.9% in June, taking the annual growth rate to 9.5%. This is the highest annual growth rate since December 2007 when record levels of overseas migration pushed rental demand higher.

Mr Lawless said rents had been negatively impacted by the long-running downturn in investment activity between 2015 and 2021.

“A reduction in average household size through the pandemic helps to explain such high rental demand during a time of closed international borders,” he said.

Outlook

According to CoreLogic, Australia’s housing market outlook is becoming increasingly skewed to the downside, with the trajectory of housing values heavily dependent on the path interest rates take.

Mr Lawless said while forecasts vary significantly it’s entirely possible the cash rate could rise beyond the pre-COVID 10-year average of 2.56%.

“Under this scenario, the average variable mortgage rate for new owner occupier loans would be approximately 4.96%, more than double the rates in April, adding roughly $720 per month to a $500,000 mortgage or $1,439 per month to a $1 million loan,” he said.

Households are also likely to be all the more sensitive to rising interest rates due to record levels of debt held by the sector according to Mr Lawless.

“The double whammy of high inflation is another factor likely to weigh on the household sector and ultimately housing demand,” he said.

“Lower savings and higher expenses along with rising interest rates will have an ongoing impact on borrowing capacity for households.

“Reduced borrowing capacity is likely to further diminish housing demand and potentially deflect more home buyers towards the middle to lower end of the pricing spectrum.”

Higher interest rates and rising inflation are also both likely to continue to weigh on consumer sentiment which could further impact homes sales Mr Lawless said.

“Although sales activity remained above average throughout the June quarter, it’s likely the number of home sales will continue to drift lower as housing demand cools and lenders become more cautious in their approach towards borrowers,” he said.