The Australian housing market gained a staggering +28.6 per cent from the pandemic trough to its recent peak, but interest rate hikes are now eating into some of those gains.
CoreLogic's latest report shows national property prices fell -1.3 per cent in July, with five of the country's eight capital cities recording substantial declines.
How will buyers, sellers and investors fare as the market continues to change? And is there a rebound on the horizon?
"The rate of growth in housing values was slowing well before interest rates started to rise, however, it’s abundantly clear markets have weakened quite sharply since the first rate rise on May 5," CoreLogic Asia Pacific's Head of Research Tim Lawless said.
With the Australian median dwelling dropping -1.3 per cent, or around $4,500, in July, the current downturn is now comparable to what was seen in the GFC of 2008.
Prices dropped fastest in Sydney which tumbled by -2.2 per cent, with Melbourne and Hobart close behind on -1.5 per cent.
The Brisbane market, which has retained significant heat until just recently, saw its first decline in close to two years of -0.8 per cent. Adelaide, meanwhile, saw its boom run ease with growth of just +0.4 per cent.
Perth and Darwin both posted modest gains of +0.2 and +0.5 per cent respectively, while Canberra followed the most expensive cities with a downturn of -1.1 per cent.
Elsewhere in the states, regional markets weakened by -0.8 per cent, though still held more of their value than their capital city counterparts.
"Although the housing market is only three months into a decline, the national Home Value Index shows that the rate of decline is comparable with the onset of the GFC in 2008, and the sharp downswing of the early 1980s. In Sydney, where the downturn has been particularly accelerated, we are seeing the sharpest value falls in almost 40 years," Mr Lawless said.
This winter has been more or less in line with the typical market slowdown seen in the colder months, but total stock is beginning to creep up thanks to fewer sales.
New listings are +6.5 per cent up on the five-year average, and while total listings are still -25.1 per cent lower than the average, CoreLogic's graphs show that deficit is reducing.
Mr Lawless sees the 2022 spring selling season ramping those numbers up further, and that's likely to come at the expense of lower auction clearance rates and lengthier selling times.
"By late spring or early summer, we could be seeing advertised stock levels trend higher than normal," he said.
"Based on the pre-COVID average, we have typically seen an +18.9 per cent rise in the number of new listings between the winter and spring seasons.
"A more substantial flow of advertised stock against a backdrop of falling demand is great news for active buyers, who will have more choice and less urgency, but bad news for vendors, who could find selling conditions become more challenging as advertised stock levels rise."
The volume of home sales is already notably lower than it was 12 months ago, and with further interest rate hikes likely to come, the ratio of listings to sales could head further towards a direction indicating a buyer's market.
Units have demonstrated resilience to the current market downturn when compared to houses. In July, Australian units lost -0.9 per cent of their value against -1.4 per cent for houses.
This is in part because the 2021 boom was predominantly house-led (house prices grew by +27.5 per cent versus +14.0 per cent for units), but there are other factors at play drawing appeal towards units.
With affordability hitting historic lows in many markets and buyers now facing a reduction in their borrowing power thanks to rising rates, units are becoming a more enticing option.
"This trend is most apparent across the three largest capitals as well as Canberra, where housing affordability challenges may be deflecting more demand towards the medium to high-density sector," Mr Lawless said.
"Additionally, firmer interest from investors should favour the unit market over houses where demand has historically been more concentrated."
The rental crisis has seen vacancy rates plunge to around 1 per cent nationally while asking rents have soared almost +10 per cent year on year. Now that property prices are on the decline and renewed immigration is set to boost rental demand further, it may trigger an uptick in investor activity, particularly in the unit market.
For most of 2022, the regional markets have continued to grow while capital cities slow, but prices finally dipped in July.
Last month's -0.8 per cent reduction is the first time the combined regions have moved into negative territory in nearly two years. NSW led the decline on -1.1 per cent, with Victoria and Queensland close behind on -0.7 per cent.
The only market still demonstrating strong gains is regional SA with +1.1 per cent for July, though that rate is now slowing as well.
Mr Lawless highlighted the fact that, while prices are beginning to slip, it's important to look at these markets in the context of this recent boom.
"Dwelling values across CoreLogic’s combined regionals index were up +41.1 per cent from the pandemic trough to the June peak, compared with a 25.5% rise across the combined capitals index," he said.
"The stronger growth reflects a significant demographic shift towards commutable regional markets, which is likely to have some permanency as more workers take advantage of formalised hybrid employment arrangements."
The beginning of August has brought with it another interest rate hike, and with more forecast it's widely expected that the market downturn will continue for the rest of 2022.
Even so, there are some predictions that rates could be cut again as early as 2023 which could return some normalcy to the market.
"When interest rates start to stabilise, or potentially reduce next year, this could be the cue for housing values to find a floor," Mr Lawless explained.
"Similar to the trajectory of the upswing, this downswing phase could be a short but sharp one, depending on how high and fast interest rate settings go."
This year's spring selling season will be starting soon which should further raise the total volume of listings on the market. The question is, will they be met with an increase in buyer demand?
A peak-to-trough decline in prices of 10 to 15 per cent or higher is still being forecast by a number of banks and economists, but a crash that all but eradicates the massive gains of the recent boom still appears quite unlikely.
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