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House prices fall

Australian house prices have fallen the fastest since the 2008 financial crisis.

Background – house prices fall

House prices in Australia are falling at their fastest pace since the global financial crisis (GFC), and property market conditions are likely to get worse as interest rates continue to rise, according to property analytics firm CoreLogic.

The most recent data shows that the nation’s median property value has dropped by 2% since the beginning of May to $747,182.

“Although the housing market is only three months into a decline … the rate of decline is comparable with the onset of the global financial crisis in 2008 and the sharp downswing of the early 1980s,” said CoreLogic’s research director Tim Lawless.

It was the fastest fall of house values since the GFC and 1980s recession.

But, on average, prices had jumped 28.6% from mid-2020, the low point of the housing market during the pandemic, to April 2022, when national prices hit their peak.

Regional Australia had an even more significant surge, with prices up 41.1% in two years. Moreover, as smaller, regional towns outside the capital cities experienced a vast influx of city-dwellers seeking better lifestyles, working remotely became the new normal.

In Sydney, where the downturn has accelerated, the sharpest value drops in almost 40 years.

The median price fell by 2.2% in July (taking its quarterly loss to 4.7 %). Despite that, an average house in Sydney costs around $1.35 million, while an average unit may go for about $806,000.

Hobart and Melbourne also recorded steep falls, with prices in both cities down 1.5% last month, while Canberra prices dropped 1.1%.

Prices in regional Australia and Brisbane fell 0.8%, their first monthly decline since August 2020.

Perth, Adelaide, and Darwin were the only capitals where prices went up in July (between 0.2 and 0.4%). It has been a sevre slowdown since May when the Reserve Bank aggressively raised the cash rate from record low levels.

Short and sharp.

“I think this downturn will be similar to the global financial crisis in that it will be quite short and sharp,” Mr Lawless


According to CoreLogic, Australia’s median property price fell by around 8.5% over 11 months during the GFC.

The property downturn is accelerating, and it would be no surprise if the current decline gets worse than what took place during the GFC.

The main difference is that central banks and government governments are presently resolved to withdraw trillions of dollars worth of stimulus in an anguished attempt to lower inflation (instead of pumping it into the global economy, as they did after the 2008 crisis).

On average, many analysts predict that Australian property prices will fall between 10 and 20%, with the two most expensive cities, Melbourne and Sydney, likely to suffer the most significant declines.

But even if the worst-case scenario eventuates, it will not drastically improve housing affordability.

If there were, say, a 15% decrease in national housing values, it would revert prices to where they were in around April 2021.

How much and quickly prices fall will depend on how aggressively the RBA decides to lift the cash rate target over the next few months.

Since May, the RBA has raised its cash rate target from 0.1 to 1.35%.

This month the central bank delivered another double-sized rate hike (0.5 percentage points). As was widely expected, the new cash rate is now up to 1.85%.

Buyers’ market as house prices fall and surging rents

The market has moved to be more in favour of buyers over sellers now, especially in markets like Sydney and Melbourne.

Buyers are taking back control. As a result, they have more choices and less urgency. However, for sellers, it means they need to be much more realistic about their pricing expectations, and they should expect there will be more negotiation.

Renters are also at a disadvantage in the current property market. As landlord mortgage repayments increase and as more international students and workers return to Australia, rents have rapidly increased.

Rental inventory is extremely tight, with vacancy rates around 1% or lower across many parts of the country.

If you contemplate the history of rents, it’s scarce to see dwelling rents rising at more than 3 – 4% per annum.

However, in the past quarter, the national average rent jumped 2.8%, up nearly 10 % in the past year.

Looking forward, Mr Lawless said renters might be under increasing pressure to rent out spare bedrooms to additional flatmates, look for cheaper rents in apartments (rather than houses), or “stay at home with mum and dad longer.”

There will be some adverse social outcomes from such high rents, which aren’t showing any signs of slowing down.

Vogue Advisory Group – advising you on the status of the housing market and property investment

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