Property prices plunging but not everyone unhappy about it

The pace of decline in the Australian property market is now faster than any previous downturn over the past 40 years.

Alarm bells are ringing for a property market in nationwide freefall following years of what has proven to be unsustainable growth.

Cotality’s national Home Value Index (HVI) released Monday (2 November) showed a further fall of 1.2 per cent in October, taking the downturn into a seventh consecutive month.

While it’s too early to call it a crash, the rapid and universal nature of the price falls is now in deep correction territory.

Capital city values down are 8.1 per cent in seven months.

A market correction is a normal, temporary pullback of roughly 5 per cent to 10 per cent. A crash involves a much sharper, widespread loss—frequently cited by analysts and market surveys as 20 per cent or greater.

A true market collapse requires widespread forced selling (such as mass foreclosures or distressed owners unable to service debt), a situation that is not yet prolific in Australia.

But with interest rates on an upward trajectory, property will become less attractive to borrowers and the already rising levels of distressed sales will keep accelerating.

Distressed listings are up 29 per cent on a year ago, with Brisbane and Adelaide stock building fastest.

In October, the worst performing cities in terms of price performance were the previous real estate engine rooms of Brisbane (down 2.0 per cent) and Perth (-1.7 per cent). Sydney was not far behind.

Tim Lawless, Research Director, Cotality, said the slower rate of absorption has seen capital city listings rise, reaching the highest level for this time of year since 2019.

“Virtually every suburb across Brisbane, Perth and Adelaide has recorded a drop in values over the past three months,” he said.

“The rise in advertised stock levels comes despite the flow of fresh listings tracking almost 18 per cent below average.

“Buyers have a lot more stock to choose from, they have more leverage and there isn’t the same urgency to buy as there was a year ago when home values were rising rapidly.

“But despite this being a buyer’s market, they are noticeably absent, reflecting low confidence and ongoing serviceability barriers.”

Where once there was a fear of missing out, there’s now a fear of jumping in. Prospective buyers watching prices fall each month are timing the market waiting for lower purchase prices and avoiding the risk of descending into negative equity.

Modelled estimates put the number of home sales over the past three months 23 per cent lower than a year ago and 18 per cent below the previous five - year average. The decline in sales activity has been most significant across Sydney and Brisbane, down 30 per cent and 29 per cent respectively compared with a year ago, Cotality noted.

Despite the scale of the upswing before the recent downturn, many homeowners in these cities are likely to retain a substantial equity buffer. In Perth, for example, a 20 per cent fall from the market’s record high would take home values back to around mid-2025 levels.

Homeowners in Melbourne and Sydney have less equity growth to fall back on. Melbourne home values are now 7.3 per cent lower than they were five years ago, while Sydney values sit 1.5 per cent below October 2021 levels. Canberra values are virtually unchanged over the same period.

At the lower end of the market, growth patterns have also shifted. During the previous upswing, lower-quartile properties significantly outperformed higher-value homes.

In recent months, however, growth rates across the broad price tiers have converged. This is particularly evident in the mid-sized capital cities, where there is now little difference in performance between the various value segments.

Not everyone is upset at the declines

Falling property prices are not necessarily bad news for everyone. In fact, new research from Westpac suggests many Australians would welcome a correction, even as concern about further falls remains widespread.

The bank’s latest Home Ownership Report found 68 per cent of Australians believe falling house prices would be good for the country, although 67 per cent are worried values could fall further.

Interestingly, even among homeowners, 62 per cent supported the idea of falling prices, but that figure becomes considerably harder to embrace when a mortgage is involved, with 75 per cent of mortgage holders concerned about further declines.

Westpac Chief Executive, Consumer, Carolyn McCann, said the findings reflected the complexity of Australia’s housing debate.

“Affordability remains a significant challenge for many Australians, and these findings suggest many view lower prices as part of the solution but there is another side to that equation. For many Australians, their home can be their biggest financial asset, so concern about falling values is understandable,” Ms McCann said.

There is a generational divide too. Gen Z were the most supportive of falling prices, at 78 per cent, compared with 58 per cent of Baby Boomers. It’s perhaps not surprising that those who have yet to get a foot on the property ladder are more enthusiastic about seeing it become cheaper to climb.

Yet lower prices alone are unlikely to solve Australia’s housing affordability problem. Four in five Australians believe home ownership is completely out of reach for the average person, while 65 per cent of first home buyers think they will never buy without an inheritance.

When asked what would actually improve access to housing, respondents pointed to more affordable homes in established suburbs, lower stamp duty and purchasing costs, stronger wage growth and better transport links to outer suburbs and regional areas.

Ms McCann said housing affordability involved more than the price of a property, with the upfront costs of buying, housing availability and household incomes also influencing whether people could enter the market.

“It’s important to remember that housing markets move through cycles and buying a home is a long-term commitment.

“While prices have fallen, our economists expect national property prices to rise by 3 per cent in 2027,” she said.

The uncomfortable reality is that a cheaper housing market is welcome news for aspiring buyers, but considerably less welcome for those whose biggest financial asset is already tied up in it.

Everyone likes the idea of cheaper houses. They’re just nowhere near as excited about that when the house is theirs.