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Prices flatten in February as property downturn hits pause

June 1, 2023
Andy Webb

Prices flatten in February as property downturn hits pause

All data and commentary within this article are sourced from CoreLogic.1

The Australian property downturn ground to a halt in February as home values held up more than they have since interest rate hikes began. 

The latest CoreLogic report1 showed an improvement in the rate of decline for all but one city, while Sydney returned to positive growth for the first time in more than a year. 

So is this the bottom of the market, or will prices begin to fall again in the coming months?

National home prices: February 2023

Australia's median property price declined by just -0.1 per cent in February, representing a very sudden flattening after many months where losses clocked in at -1.0 per cent and beyond. 

There was a shock stabilisation in the market throughout February. Source: CoreLogic

Sydney saw price growth for the first time in over 12 months. As a result, home values were bumped +0.3 per cent to break back through the $1 million median threshold. 

Losses in Melbourne and Brisbane were moderate at -0.4 per cent, and Adelaide continued its resilient run with declines of just -0.2 per cent. 

Perth held more-or-less flat at -0.1 per cent, and both Darwin and Canberra contained things to below half a per cent corrections. 

Only Hobart showed significant weakness for February, dropping another -1.4 per cent. 

CoreLogic's research director Tim Lawless cautioned that, while the pause in the downturn might look like the market bottoming out, there may well be further declines to come. 

"Considering the RBA’s move to a more hawkish stance at the February board meeting, along with an expectation for a weaker economic performance and a loosening in labour markets, there is a good chance this reprieve in the housing downturn could be short-lived," he said.

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An ongoing shortage of listings is helping to contain price falls

Available stock on the market has been in short supply since last year's unusually quiet spring selling season. Prices are beind held up as a result, as buyers find themselves with less to choose from. 

New capital city listings in February were down -17 per cent year-on-year and fell -11.9 per cent below the five-year average.  

Both new and total listings are sitting well below average levels. Source: CoreLogic

Total listings on the market were also more than -20 per cent lower than the five-year average, suggesting many sellers are simply avoiding listing where possible. 

"So far, it seems prospective vendors are prepared to wait this downturn out," Mr Lawless explained.

"The flow of new listings is well below average for this time of the year across each of the major capitals. The flow of new listings will be a key trend to watch over the coming months. Any signs of listings activity moving to above average levels could weigh on housing prices."

Buyer demand, meanwhile, has been holding relatively steady. Across Australia, February home sales were up +39.4 per cent on January. 

Auction clearance rates were up close to the +70 per cent mark too, so demand looks to be meeting what limited supply is out there at the moment. 

Regional markets continue to hold strong

For the vast majority of the current correction phase, Australia's regional property markets have outperformed their capital city counterparts. That wasn't quite the case in February, but the regions still saw a substantial easing in conditions. 

Regional markets again held relatively strong in February. Source: CoreLogic

The median property price across the combined regionals dropped only -0.3 per cent for the month, a figure that CoreLogic suggested would have matched capital city performance if not for Sydney's surprise positive growth. 

"Each of the broad rest-of-state regions, apart from NSW, recorded a monthly outcome that was inline or stronger relative to their capital city counterparts," the report read. 
Regional markets have broadly outperformed the capitals throughout the downturn. Source: CoreLogic

Regional South Australia and Western Australia both came out on top once again after delivering positive growth. Losses were relatively minimal in every other state but Tasmania which, like Hobart, has continued to struggle into 2023. 

The 'fixed-rate cliff' may destabilise the market further

February's results may have brought an unexpected air of stability to the property market, but there could well be more turbulence coming in the year ahead. 

CoreLogic2 noted that the impending 'fixed-rate cliff' is "one of the biggest potential risks to housing market values" in 2023. But what exactly does it mean? 

Between January 2020 and October 2021, around 1.2 million new mortgages were financed while rates were around record lows. More than a third of that debt was dispensed as fixed-term mortgages. 

It's expected that the majority of those homeowners will see their fixed rates lapse in the coming months, suddenly pushing their monthly repayments far higher and potentially putting some under serious financial strain. 

As we approach that 'cliff', Mr Lawless suggested that "arguably the full impact of the aggressive rate hiking cycle is yet to play out."

In the meantime, CoreLogic's head of residential research Eliza Owen said that "listings data and arrears data suggest there is minimal impact on the housing market from defaults."

Ultimately we will see how the reality plays out over the rest of 2023. If there is a sudden increase in distressed listings as homeowners struggle to keep up with their repayments, the downturn could pick up the pace once again.

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What's next for the Australian property market? 

"It’s probably too early to call a trough in the cycle considering there are several factors which could trigger a ‘re-acceleration’ of housing value declines over the course of the year," CoreLogic's report stated. 

Interest rates remain the key driver of price declines and market uncertainty, so the question remains: when and how high will the cash rate peak? 

The most recent messaging from the RBA has been described in the media as 'hawkish', and as a result, three of the big four banks are now predicting rates to climb from the current 3.35 per cent rate all the way up to 4.1 per cent. 

Pushing rates beyond 4 per cent would continue to add downward pressure to the wider market as it would risk an increase of stock levels due to forced sales. 

The RBA's decisions will be closely monitored and scrutinised over the coming months, as will levels of new listings to help understand whether the 'fixed-rate cliff' effect does end up playing out. 

In the longer term, the outlooking is more promising. CoreLogic's report noted that "despite the headwinds accumulating for the housing market in 2023, there is no denying the fundamental under-supply of housing stock."

"With the cash rate expected to stabilise later in 2023, there could be a pick-up in buyer demand through the second half of the year, or early in 2024."

1. CoreLogic News, ‘CoreLogic Home Value Index: Value declines flatten as low advertised stock levels keep a floor under prices’, 1 March 2023

2. CoreLogic News, ‘Five things to know about the ‘fixed-rate cliff’’, 24 February 2023

This market update is written expressly for education purposes and content is based on the opinions of the authors or as otherwise cited. All information is current as at publication release and we take no responsibility for any factors that may change thereafter. Doorsteps Finance Pty Ltd ABN 27 648 541 879 and Doorsteps Solutions Pty Ltd ACN 654 334 246, the holder of Australian Credit Licence 537369 does not accept any liability or responsibility whatsoever to any error or omission or any loss or damage of any kind sustained by a person or entity arising from the use of this information.  It does not constitute legal, tax or financial advice and you should always seek professional advice in relation to your individual circumstances.

Disclaimer: Property reports contain property estimate data and information provided by RP Data Pty Ltd trading as CoreLogic Asia Pacific ABN 57 087 759 171 (CoreLogic) and OpenAgent Pty Ltd, which is general in nature. It is not a professional property valuation or advice to be relied upon. The actual market value of the subject property may differ. We and CoreLogic do not warrant the accuracy, currency or completeness of the data and information to the full extent permitted by law, each excludes all loss or damage howsoever arising (including through negligence) in connection with the information. You rely on the property estimate at your own risk.

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