Coolabah Capital’s Chris Joye published the following chart on X (Twitter) showing how dwelling values are falling at an annual rate of 12.0% across the five major capitals, led by Sydney, which is falling at a rate of 16.7% annualised:
Justin Fabo from Antipodean Macro, meanwhile, posted the following chart showing that the monthly rate of decline in dwelling values in seasonally adjusted terms has accelerated across the five major capital cities:
The decline in dwelling values has occurred alongside a decline in new mortgage commitments:
Meanwhile, the latest Westpac-Melbourne Institute consumer sentiment survey, released on Tuesday, showed that consumer expectations on house prices fell to a fresh three-year low. The decline was also broad-based across states, reflecting the synchronised price correction now taking place.
It is hard to see what might turn the situation around.
While the Reserve Bank probably won’t hike rates again, given the acute weakness in the housing market, it is also unlikely to cut rates anytime soon, given stubbornly high inflation and its hawkish commentary.
Meanwhile, the federal budget’s changes to negative gearing and capital gains tax still need to work their way through the system.
As noted this morning, NAB economists and Louis Christopher from SQM Research believe that gross rental yields need to rise by about 30% to compensate for the loss of tax benefits.
My view is that most of this “compensation” will come from falling prices rather than rising rents, similar to what has happened in New Zealand following the abolition of negative gearing (i.e., residential rental losses cannot reduce tax on salary, wages, or business income):
As a result, Australia is facing its deepest house price correction in generations.
Judging by the sharp decline in consumer house price expectations, Australians are starting to come to a similar realisation.
