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Property market decline picks up pace in 'short but sharp' downturn

May 29, 2023
Andy Webb

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

A fourth consecutive month of interest rate hikes has hit the Australian housing market hard, with all but two regions experiencing negative growth in August. 

The latest CoreLogic HVI report depicts a swift acceleration of the downturn, but there's a chance that the plunge won't last as long as some headlines are saying. 

With the spring selling season just kicking off, there's a lot to consider for both buyers and sellers as the turbulent market spreads uncertainty. 

National housing prices: August 2022

Australian home values struggled again in August, with the median house price falling by -1.7 per cent and units dropping -0.9 per cent. Overall, the -1.6 per cent decline was the largest monthly correction in nearly 40 years. 

Widespread price falls were seen throughout August. Source: CoreLogic

Sydney has been leading the downturn and fell another -2.3 per cent, bringing total declines from the peak to -7.4 per cent — although it's worth remembering that Sydney home values exploded by +27.7 per cent over the pandemic boom. 

Melbourne saw a more subdued -1.2 per cent drop, while Brisbane's dream run has clearly gone into reverse, with the Queensland capital plunging -1.8 per cent in August. Again, that needs to be taken into the perspective of +42.7 per cent gains during the boom. 

Like Brisbane, Adelaide's extensive period of growth looks to be over, as the city went fractionally into the red for the first time in around two years. 

Perth remained more or less flat, while Canberra and Hobart fell -1.7 per cent. At this point, Darwin is the only capital city still undergoing growth, getting a +0.9 per cent bump. 

The regions also fell sharply in August, subtracting a collective -1.5 per cent to home values. 

CoreLogic's research director Tim Lawless said the magnitude of the correction "will really depend on how long this lasts, and the chances are it probably will be a fairly short but sharp downturn."

The spring selling season is set to boost listings higher

CoreLogic's data on listings shows this winter has been a more active one on the selling front. New listings in August were +13.4 per cent higher than the same month last in 2021 and +6.5 per cent above the five-year average. 

While total listings on the market remain -9.5 per cent below the five-year average, that number is starting to inch its way upwards too. 

New listings are on the rise, pushing total stock on the market closer to average levels. Source: CoreLogic

The 2022 spring selling season is expected to bump those numbers higher, although the 2022 season could be a slightly quieter one than usual. 

"Between winter and spring we typically see a 22 per cent rise in the number of new capital city listings based on the pre-COVID five-year average," Mr Lawless said. 

"The flow of new listings this spring season may not be quite as active with the housing downturn dissuading some prospective vendors, but we are likely to see more listings added to the market than in winter."

Buyers are still behaving with caution, however, and there may be an overall increase to available stock. In any case, it's likely to be very much a buyer's market, with more to choose from and less heated competition.

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Regional markets turn sharply as falls match capital cities

After a long period where Australia's regional areas continued their runs of strong growth as the capital cities faded, the needle has finally turned, pulling regional markets down at a similar rate. 

August saw regional markets experience a sharp downturn. Source: CoreLogic

Save for regional SA, the only market still slightly in the green, every state fell in August, bringing the combined regional decline to -1.5 per cent for the month. 

"The largest falls in regional home values are emanating from the commutable lifestyle hubs where housing values had surged prior to the recent rate hikes," Mr Lawless said. 

"Over the past three months, values are down -8.0 per cent across the Richmond-Tweed, -4.8 per cent across the Southern Highlands-Shoalhaven market and -4.5 per cent across Queensland’s Sunshine Coast."

Again, it's important to put these numbers into perspective, as regional Australia as a whole grew over +40 per cent between March 2020 and January 2022. The net result is still extremely high growth. 

Gains from the recent boom still heavily outweigh recent price declines

Zooming out from the month-to-month statistics is a good reminder of just how high our property markets peaked before beginning the recent decline. 

The CoreLogic report puts trough-to-peak growth over the pandemic alongside the current correction figures, clearly showing that the price drops seen so far are still far smaller than the gains built up. 

Recent falls in home values are only fractions of what was built up since 2020. Source: CoreLogic

Mr Lawless noted that "a 15 per cent peak to trough decline would roughly take CoreLogic’s combined capitals index back to March 2021 levels.

"Additionally, many homeowners would have had at least a 10 per cent deposit and paid down a portion of their principal, the risk of widespread negative equity remains low."

The vast majority of homeowners are still far better off than they were pre-pandemic, and even if a correction as significant as -15 per cent were to unfold, they'll have netted positive growth over the past few years.

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What comes next for Australian property?

According to Mr Lawless, the market may continue to cool for the rest of year and possibly for some of 2023. "It's hard to see housing prices stabilising until interest rates find a ceiling and consumer sentiment starts to improve," he said. 

The RBA's fast and heavy rises to the cash rate look to already be having an impact on inflation, though, and that's making a legitimate market crash a less and less likely scenario. 

Dr Shane Oliver, AMP Capital's chief economist, is expecting interest rates to stabilise around 2.60 per centReaching 3 per cent and above would have more major implications for the property market as that range could induce more widespread mortgage stress — something he said the RBA will want to avoid. 

Mr Oliver, as well as a number of other leading economists, is forecasting cuts to the cash rate in the latter part of 2023, after which time growth could be stimulated once more. 

Looking to the rest of 2022, the spring selling season is likely to favour buyers over sellers. "There is a good chance advertised stock levels will accumulate through the spring selling season, providing more choice for buyers and adding further downwards pressure on housing values," Mr Lawless said. 

"Sellers will need to be realistic in their pricing expectations and ensure they have a quality marketing campaign in place."

Research News,‘Home Value Index: Housing downturn accelerates as falling values become more widespread’, CoreLogic, 1 September 2022, https://www.corelogic.com.au/news-research/news/2022/home-value-index-housing-downturn-accelerates-as-falling-values-become-more-widespread

Dr Shane Oliver, ‘Five reasons why the RBA cash rate is likely to peak (or should peak) with a 2 in front of it rather than a 3 (or more)’, AMP Capital, 2 August 2022, Sydney Australia, https://www.ampcapital.com/au/en/insights-hub/articles/2022/august/Five-reasons-why-the-RBA-cash-rate-is-likely-to-peak

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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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