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The median Sydney property price has fallen for the first time in 17 months, with other capital cities also cooling off in February 2022, according to CoreLogic's latest report.
Talk of interest rate rises and an increase in total available stock are among the driving factors in the slowdown.
So is this all good news for buyers in 2022?
February saw a +0.6 per cent rise in the median Australian home price, the smallest increase since October 2020.
Growth slowed in almost every capital city, and in two cases gains have come to a standstill.
The -0.1 per cent drop seen in Sydney was the first time since September 2020 that prices in the Harbour City have fallen, and Melbourne's stagnation brings gains to just +0.2 per cent for the quarter.
On the other side of the coin, Brisbane and Adelaide have continued their strong second winds, although both cities eased their rates of growth in February as well.
Canberra, Perth and Darwin are also trending lower, while Hobart was the only Australian capital to hold the same level of growth (+1.2 per cent) seen in the previous month.
As has been the case for several months now, regional markets are looking strong, outperforming the cities substantially. Regional Queensland, SA and Tasmania all delivered particularly strong results for February.
Looking at the country as a whole, the rate of annual growth has dipped for the first time in 11 months. In January that figure was +22.4 per cent; now it's down to +20.6 per cent for the 12 month period.
A broad increase in stock on the market is one of the key reasons price growth is dipping.
While total listings across the country are still -32.1 per cent lower than the five-year average, that number has been trending downwards as more new listings come onto the market.
Supply levels in Sydney and Melbourne in particular have been pushed up to "more normal levels," according to CoreLogic, and that's playing a vital role in the slowdown seen in both markets.
That dynamic doesn't apply to all markets, though, where a lack of housing supply still can't keep up with high buyer demand.
"The cities where housing values are rising more rapidly continue to show a clear lack of available properties to purchase," CoreLogic's head of research Australia Tim Lawless explained.
"Total listings across Brisbane and Adelaide remain more than 20 per cent lower than a year ago and more than 40% below the previous five-year average."
"Similarly, the combined rest-of-state markets continue to see low advertised supply, 24.9 per cent below last year and almost 45% below the five-year average."
CoreLogic's report points out that, on top of rising listings being seen in Melbourne and Sydney, factors like rising higher home loan rates, affordability concerns and declining consumer sentiment are also putting downward pressure on prices.
A continued influx of new listings adding to total stock levels is helping to take some of the one-sided seller power out of the market, something that will be welcome news for buyers in 2022.
Once again, regional markets in Australia have delivered strong growth performance compared to the capitals. February saw regional homes gain another +1.6 per cent in value.
South Australia, Queensland and Tasmania registered the biggest gains last month, while WA was the only regional market to fall below +1.0 per cent monthly growth.
The latest regional market update released by CoreLogic recounted the soaring performance in coastal markets particularly in the last 18 months. The factors cooling growth in the capitals are also starting to affect the regions, though.
“Regional housing markets aren’t immune from the higher cost of debt as fixed-term mortgage rates rise," Mr Lawless explained.
"These markets are also increasingly impacted by worsening affordability constraints as housing prices consistently outpace incomes."
"However, demographic tailwinds, low inventory levels and ongoing demand for coastal or treechange housing options are continuing to support strong upwards price pressures across regional housing markets."
So, while the regions are still delivering strong and steady price growth, it seems likely that will change later into this year.
SQM Research reported in January that Australian rental vacancy rates are down to 1.3 per cent, the lowest level in 16 years.
"This represents an acute shortage of rental properties, and the shortage has already been translating into large surges in weekly rents across the country," SQM's Louis Christopher explained.
Tim Lawless said that vacancies have fallen and rents are rising in Sydney and Melbourne especially.
"Anecdotally, demand for unit rentals in these cities has been bolstered by a combination of worsening rental affordability deflecting more demand towards the higher density sector, where rents tend to be lower, and demand starting to return from overseas arrivals," he said.
With Australia's international border back open as of February, an influx of people coming to the country should drive up demand for rental accommodation. That may see rental vacancies drop even further, putting upward pressure on rents.
A tough rental market could become tougher for renters, but it's likely to entice investors who can look forward to better returns.
The median Australian home has risen in value by $144,000, or +24.6 per cent, since March 2020.
All-time-low interest rates, lockdown-induced household savings, a shortage of listings, high buyer demand, government stimulus and overall positive consumer sentiment are all factors that have led to that boom.
As CoreLogic's report explains, "each of these factors are losing their potency to drive housing values higher."
As it stands, interest rates are predicted to rise, new listings are trending upwards, affordability is pushed to the limit and consumer sentiment is shifting, so the seller's market that we saw throughout 2021 may be transitioning to a more buyer-friendly environment.
"With rising global uncertainty and the potential for weaker consumer sentiment amidst tighter monetary policy settings, the downside risk for housing markets has become more pronounced in recent months," Mr Lawless said.
In terms of elements that could hold off price falls, a strong economy and increased travel activity (both domestic and overseas) will likely create some upward pressure on prices, so a market crash looks unlikely.
Overall, the big banks are predicting property prices to start falling over the next 12 months, which would create some respite for buyers—first home buyers especially—trying to make their next move in the market.
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