Value declines slowed down during September

CoreLogic has reported its HVI recorded a 1.4 per cent decline in September, down from 1.6 per cent in August, with the slowed momentum of value decline evidently mostly in capital cities and broader rest-of-state regions.

The rate of decline accelerated in both Adelaide (0.2 per cent) and Perth (0.4 per cent); however, these reductions have been branded as “mild” in comparison to those experienced by other capitals, such as Sydney, which saw its monthly rate of decline ease from 2.3 per cent in August to 1.8 per cent last month.

Declines in Melbourne cooled slightly from 1.2 per cent in August to 1.1 per cent in September. It was a similar situation in Brisbane, which dropped from 1.8 per cent in August to 1.7 per cent last month.

Darwin remains the only anomaly, whereby house prices are yet to trend into negative territory; however, this is counteracted by the fact that values remain 10.1 per cent below the 2014 peak.

Despite the latest findings, Tim Lawless, CoreLogic’s research director, indicated that it remains too early to confirm whether the housing market has bypassed the worst of the downturn.

“It’s possible we have seen the initial shock of a rapid rise in interest rates pass through the market and most borrowers and prospective home buyers have now ‘priced in’ further rate hikes. However, if interest rates continue to rise as rapidly as they have since May, we could see the rate of decline in housing values accelerate once again,” he said.

Mr Lawless outlined how the decline occurred simultaneously with improvement in other market indicators, including clearance rates, which have slowly trended upwards from mid-year lulls, and consumer sentiment — which improved in September on the back of strong labour market conditions.

He noted how there has also been a “flow of fresh listings [which] continue to slide through the first month of spring, which is uncommon for this time of year”.

Currently, Australia’s combined capital cities — where house prices climbed 25.5 per cent over the recent growth cycle — have seen values fall 5.5 per cent from the recent peak, equating to a loss of $46,100.

Regional housing markets have benefited from having a peak two months after their capital counterparts, resulting in their values, which grew 41.6 per cent during the upswing, only dropping 3.6 per cent through the end of September, or approximately $21,700.

Sydney remains the leading city for largest value drop since its peak. The harbour city’s market has seen prices plummet 9 per cent, or $104,300, from its peak in January this year.

Even with these rates of decline, the buffer between current prices and pre-COVID prices remains substantial across most Australian cities. Across the combined capital cities, house prices would need to drop 13.5 per cent in order to eradicate pandemic growth. However, in Melbourne, the fall would only need to be 4.3 per cent for this to occur.

Despite national trends, CoreLogic did explain that there were regions around the country that are resistant to the downwards momentum of prices, with Mr Lawless highlighting how this is occurring in “the more affordable areas of Adelaide and Perth, as well as some regional markets associated with agriculture, mining, and tourism”.

He concluded that interest rates would be the most influential factor in the housing market. To date, the cash rate had risen to 2.60 per cent after the Reserve Bank of Australia (RBA) handed down its October decision, the quickest increase since 1994, when, CoreLogic argued, households were less sensitive to the sharp rise in the cost of debt.

“In the September quarter of ’94, the ratio of housing debt to household disposable income was just 46.8. The impact of a higher cost of debt is far more meaningful now, with a housing debt to household income ratio of 143.7 recorded in March 2022,” Mr Lawless said.