More than $100,000 wiped from Sydney property prices as rate hikes bite

Property prices are plunging fast as higher interest rates eat into home owner wealth.

Property prices are plunging fast as higher interest rates eat into home owner wealth. Photo: AAP

Australian home owners are experiencing the biggest drop in wealth for decades as rising interest rates push down property prices, and leave the market mired in uncertainty.

Average home prices across Sydney have fallen an astonishing $116,500 from a February peak, having plunged by 10.1 per cent, CoreLogic figures published on Monday revealed.

It’s the largest property price decline across the nation, followed by Melbourne at 6.4 per cent.

This has happened in just seven months, making it one of the sharpest property downturns in Australian history as interest rates have been hiked from historic lows to curb inflation.

CoreLogic’s research director Tim Lawless said the pace of property price declines was slowing, but the outlook remained uncertain as the Reserve Bank tightens rates.

“It’s highly uncertain how much housing values will fall. Whether we’re halfway there yet is debatable, to be honest,” Mr Lawless said.

“It really depends on where interest rates land and what happens with inflation.”

Reserve Bank forecasts recently released under Freedom of Information laws show it believes property prices could fall by as much as 20 per cent by the end of 2024.

But a smaller 11 per cent fall by the middle of 2023 is more likely, the RBA forecasts, with prices tipped to begin stabilising when rates peak.

Mr Lawless noted that Sydney’s house prices rose 27.9 per cent (or $252,900) on average over the pandemic, and that the current falls were unlikely to completely erase these gains.

“In the past two months the rate of decline in Sydney has eased off a little … that’s coincided with a bit of an uptick in clearance rates.”

How high will interest rates go?

One key uncertainty facing house price forecasts is how high interest rates will go after a record six straight hikes from the Reserve Bank as it battles to bring down inflation.

The cash rate is currently 2.6 per cent, but could rise much further in the next six months, which Mr Lawless said would put more pressure on house prices.

Markets are expecting two more rate hikes this year alone, which would take the cash rate target to 3.1 per cent by Christmas.

“We’re not expecting house prices to stop falling until interest rates find a ceiling, which will probably be some time next year,” Mr Lawless said.

“There’s still a huge amount of uncertainty around the cash rate, let alone where house prices are going to land.”

At the very least, the initial shock of higher rates appears to have flowed through the market now, with the rate of decline in prices across Sydney slowing from 2.2 per cent to 1.2 per cent.

Elsewhere in the country property price plunges have been more muted. Prices across Adelaide and Perth have declined less than 1 per cent since their peaks in August.

Prices in Brisbane are down 6.1 per cent on average since June, slightly below Melbourne.

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