Australia’s housing market is on the verge of a national price correction following 0.75% of interest rate hikes from the Reserve Bank of Australia (RBA), stretched housing affordability, and weakening economic conditions.
Cotality’s daily dwelling values index, which tracks values across the five major capital city markets, rose by only 0.03% over the past 28 days and is clearly trending down.
The decline in growth has been driven by sharp falls in Sydney (-0.6%) and Melbourne (-0.7%), while Brisbane’s price growth has halved from a month ago at 0.7%:
Cotality’s director of research, Tim Lawless, warns that “Australia is on the cusp of a housing downturn as rate pressure and affordability take hold”.
“Sydney and Melbourne are already five months into the early phases of decline, while growth is slowing across the mid-sized capitals. Listings are picking up as demand softens, interest rates are rising while affordability and serviceability pressures are biting”, he said.
“This trend has been amplified by seventy-five basis points of rate hikes so far this year and the chance of another hike, or hikes, later in the year”.
“Importantly, the market was already slowing well before the hiking cycle commenced, highlighting the downside impact of waning confidence from late last year alongside rising inflation and worsening levels of housing affordability”.
Cotality’s latest chart pack shows the softening in housing market indicators, driven by the expensive end of the market.
Source: Cotality
Sales volumes have fallen below the five-year average over the past six months:
Source: Cotality
Meanwhile, the volume of new listings has shot up 22.4% over the past year to be tracking 4.7% above the five-year average:
Source: Cotality
Although total listings remain depressed, they are rising fast:
Source: Cotality
Cotality notes that over the past 40 years, Australia’s combined capital city housing market has experienced 10 downturns in which home values fell for at least 3 months.
The most significant decline was in 2017-19, when values fell by 8.2% amid credit tightening, following a period of solid growth. 2022-23 wasn’t far behind, with values down 8.1% over 9 months as interest rates rose from emergency lows post-pandemic.
Source: Cotality
Given the record overvaluation, the forecast of at least one more interest rate rise this year, and the expected sharp increase in the nation’s unemployment rate, Australian home values are poised for their largest decline in at least 40 years.
Ultimately, it all comes down to the following chart from Shane Oliver at AMP:
Australian home values have grown beyond what buyers can afford at prevailing interest rates.
Therefore, as interest rates rise further, home prices nationally will fall.
The jaws must close with the red line falling towards the blue line.
