Property prices suffer biggest ever fall

Indebted Australians being slammed by rapidly rising interest rates have contributed to the largest housing market decline on record.

While the fall in national home values of 8.40 per cent is the largest peak-to-trough decline on record, at the end of 2022 home values were still 16.0 per cent higher than they were five years ago, and 59.8 per cent higher than 10 years ago.

That will offer little consolation to buyers who entered the market around or following its peak in May 2022 and have seen their prime asset erode sharply in value as their mortgage rates continue to skyrocket.

Higher household indebtedness is increasing the sensitivity of housing values to interest rate rises.

The latest Reserve Bank of Australia’s estimate of housing debt-to-income ratio sitting at 188.5 per cent, compared to a decade ago when it was at 162.0 per cent, or 2002 when it was just 130.2 per cent.

CoreLogic’s report released on Monday (9 January) reveal the national housing downturn has entered new territory.

The current downturn surpasses the previous record in peak-to-trough declines, when home values fell 8.38 per cent between October 2017 and June 2019. While the housing downturn between 2017 and 2019 lasted 20 months, the new record-breaking price falls have played out in less than nine months, with further falls expected in the months ahead.

CoreLogic Australia’s Head of Research Eliza Owen said higher inflationary pressures, combined with a post-lockdown surge in spending, has also eroded household savings, which could be utilised for a home loan deposit.

“This trend is also being reflected in low consumer sentiment figures, which has plunged to near-recessionary levels and traditionally coincides with fewer home sales.”

“Softer housing demand may also reflect Australia’s ‘hangover’ from the elevated sales and listings activity through the 2021 boom, when an estimated 619,531 transactions occurred over the calendar year.

“It was the highest volume of housing sales in more than 18 years.

“Fuelled by record-low interest rates and stimulus such as HomeBuilder and low-deposit home loan schemes, may have brought forward many buying and selling decisions through the pandemic, resulting in less transaction activity in subsequent years,” Ms Owen said.

Property price movements vary widely

The bulk of the downturn is being led by Australia’s three largest capital cities, which also have the largest weighting in the national home value index.

Sydney home values have seen a peak-to-trough decline of 13.0 per cent, Brisbane values have fallen 10 per cent and Melbourne dwelling values are 8.6 per cent from the peak.

At the other end of the spectrum, Perth dwelling values have fallen less than 1 per cent from a peak in August last year and some markets are still experiencing strong growth.

Hotspotting Director Terry Ryder said many property markets are defying the negative sentiment, particularly the more affordable areas.

He singled out top performers over the past quarter as being Perth, Adelaide and Darwin, as well as specific suburban markets such as Armadale, Canterbury-Bankstown, Hume, Marion, Playford/Salisbury, Toowoomba, Townsville, Wanneroo, and Wollongong.

“Perth is the nation’s most vibrant market at present where about three-quarters of suburbs are rising or consistency locations, led by the affordable end of the market, plus, Wanneroo and Armadale feature among our National Top 10 Municipalities,” Mr Ryder said.

“While the Adelaide market is not quite as strong as it was three months ago, the South Australian capital continues to be a solid performer defying the downturn pressures with the local government areas of Playford, Salisbury, Onkaparinga and Marion having outstanding markets.”

Mr Ryder added that even the hardest hit cities in terms of price offered capital growth potential, with units presenting some of the best value.

“Sydney has been declining since mid-2021 but the Inner West and Canterbury-Bankstown remain busy markets.

“The inner-city unit precincts are defying the general decline seen in Brisbane since the start of 2022.

“With borders open and overseas migrants and students returning, demand from renters and buyers of units has risen and vacancies have dropped markedly.”

Perth remains the most affordable capital city by median house price, and while prices have risen in the past two years, in many areas they are still below the previous peak in 2014/15.  

Perth property still on the rise

REIWA CEO Cath Hart said Perth house prices will show moderate growth of between 2 and 5 per cent in the next 12 months.

“Perth’s forecast price growth in 2023 will be supported by ongoing low supply and strong demand.”  

Demand for housing in WA is expected to stay relatively strong, supported by population growth.   

“Any increase in new listings will be offset by population growth,” Ms Hart said.  

“WA’s population grew 1.3 per cent in the year to June 2022 and the State Government’s recent Mid-Year Budget review forecast further growth of 1.5 percent in 2022/23.  

“As more people arrive in WA, this will maintain the demand for housing and keep listings low.” 

interest rates are anticipated to have a minimal impact on the WA market, in contrast to other states.  

“WA buyers have become more cautious and price sensitive following eight consecutive interest rate increases in 2022,” Ms Hart said.

“But so far, the local market is weathering interest rate changes well, supported by a strong economy, low unemployment and continued population growth.  

“In addition, housing affordability has allowed buyers and mortgage holders to absorb interest rate rises.”

Regional property markets hit too

Population growth was also seen as the key for regional property markets.

The Regional Australia Institute (RAI) said Monday that increasing overseas migration will be vital to the growth and sustainability of regional Australia.

RAI say 2021 Census data shows that overseas born migrants are not opposed to living outside of metropolitan areas if they have the information and support to do so. Between 2016 and 2021 Census periods, 70 per cent of the 254 local government areas that saw an increase in population in both Australian and overseas born residents, were in regional areas.

Census data also shows that migrants are helping to buffer the population decline in some regional communities. Between 2016 and 2021, 103 regional LGAs had their Australian population decline while their overseas population rose.

In RAI’s submission to the Department of Home Affairs’ review into migration systems, greater support of migrants to settle in regional Australia was highlighted as key to attracting and maintaining overseas populations in the regions.

“Demand to live in regional Australia is not the issue,” Ms Ritchie said.

“To have more migrants living in regional Australia, we need to provide further awareness about job opportunities, including job support services, and ensure we have communities with enough housing and critical soft and hard infrastructure.”

Although regional areas around the country are experiencing chronic rental shortages, property prices in many areas, particularly the east coast, have tanked.

Over the past 18 months house prices in regional NSW have fallen 38 per cent, with the state seeing the sharpest drops across Australia.

The PropTrack Regional Australia 2022 Report found that popular tree-change and sea-change markets that boomed during successive Covid lockdowns were the first to see prices fall.