The rollercoaster ride for property has seen values fall 5.3% over the course of the year - marking the largest decline since 2008.
According to CoreLogic, prices across the country fell another 1.1% in December, which was slightly more than the prior month. Values dropped 1.4% in Sydney, 1.5% in Brisbane, 1.2% in Canberra and Melbourne, while Hobart recorded the sharpest decline of 1.9%. Only Perth recorded a slight gain of 0.1% for the month.
Annual falls were the most significant in Sydney (-12.1%) and Melbourne (-8.1%) where conditions peaked early in the year. Hobart (-6.9%), the ACT (-3.3%), and Brisbane (-1.1%) also recorded an annual drop in housing values, while Adelaide (10.1%), Darwin (4.3%) and Perth (3.6%) saw a slight increase in prices.
CoreLogic’s research director, Tim Lawless, said home prices were initially rising in 2022 before the RBA started raising interest rates.
“Our daily index series saw national home values peak on May 7, shortly after the cash rate moved off emergency lows,” Mr Lawless said.
“Since then, CoreLogic’s national index has fallen 8.2%, following a dramatic 28.9% rise in values through the upswing.
“The more expensive end of the market tends to lead the cycles, both through the upswing and the downturn. Importantly, recent months have seen some cities recording less of a performance gap between the broad value-based cohorts.
“Sydney is a good example, where upper quartile house values actually fell at a slower pace than values across the lower quartile and broad middle of the market through the final quarter of the year.”
While capital city markets have been experiencing sharp declines, regional values have remained relativity solid according to Mr Lawless, showing a 0.1% increase.
“Annual falls across Regional NSW (-2.7%) and Regional Victoria (-1.3%) offset annual gains across the remaining regional markets,” he said.
“Regional South Australia has been the stand out for growth conditions over the past year, with values up 17.1% through 2022.
“The well-known Barossa wine region led the capital gains with a 23.0% rise in values over the calendar year.”
Despite the slowdown in property prices, values still remain 11.7% higher than pre-COVID levels in the capital cities and 32.2% higher in regional Australia.
“Melbourne is the only capital city where the current downwards trend is getting close to wiping out the entirety of COVID gains, with dwelling values only 1.5% above March 2020 levels,” Mr Lawless said.
“The relatively small difference between March 2020 and December 2022 levels can be attributed to a number of factors, including a larger drop in values during the early phase of COVID, a milder upswing through the growth cycle and the -8.3% drop since values peaked in February.”
At the other end of the scale is Adelaide, where housing values remain 42.8% above pre-COVID levels. Adelaide dwelling values recorded a 44.7% gain through the upswing, and have held relatively firm since interest rates started to rise, down only -1.3% from the recent peak.
Tight supply continues
Across the country, levels of supply are still remaining low which is contributing to prices holding up relatively well.
Advertised supply levels ended 2022, 7.8% lower than last year and 19% below the previous five-year average.
The lower than normal flow of fresh listings added to the market over the past few months has been a key factor keeping overall inventory levels low.
“The trend in housing inventory showed a conspicuous lack of seasonality through spring and the first month of summer, with advertised supply holding reasonably firm post-winter,” Mr Lawless said.
“Vendors have been reluctant to test the market through the downturn, with the number of new listings over the past four weeks almost -31% lower than a year ago when capital city homes were selling in around 20 days.
“Today, the median time on market has increased to 31 days, leading to a blow out in vendor discounting rates from just 3.1% a year ago to 4.2% at the end of 2022.”
Rents keep on rising
National rents increased a further 0.6% in December to be 2.0% higher through the December quarter and up 10.2% over the calendar year. Rents rose across every region and housing type across the country over the past year, ranging from a 4.0% rise in house rents across the ACT to a 15.5% increase in Sydney unit rents.
“As renters face worsening affordability pressures, it’s logical to expect more rental demand to transition towards higher density options, where rents are generally more affordable, or for rental households to maximise the number of tenants in a rental dwelling,” Mr Lawless said.
Mr Lawless said he expects house prices to continue to decline in early 2023 as the RBA pushes forward with further interest rate hikes, before starting to stabilise later in the year.
“Interest rates, or more specifically, mortgage rates, will be one of the main factors influencing housing market outcomes,” he said.
“The timing and magnitude of a peak in the cash rate remains highly uncertain, however at least one more 25 basis point lift seems all but certain.”
The other key concern in 2023 remains the fixed rate mortgage cliff that will see a large portion of borrowers with fixed rate loans rolling off to higher variable rates.
“As progressively more fixed rate borrowers become exposed to higher mortgage repayments, alongside variable rate borrowers, it is reasonable to expect mortgage arrears will gradually trend higher, albeit from record lows in 2022,” Mr Lawless said.
According to Mr Lawless, the next growth phase for property markets will need to be triggered by some type of catalyst.
“Historically, a new phase of growth in housing values has been associated with a catalyst or combination of stimulatory events such as falling interest rates, easing credit policies, or favourable government policy outcomes,” he said.
“Considering how important housing is to the household sector and broader economy, it’s possible any combination of these outcomes could come to fruition later in the year.”