Sydney and Melbourne lead accelerating housing downturn

House prices are set to tumble around the country this year.

House prices are set to tumble around the country this year. Photo: Getty

Sydney and Melbourne are leading the tumble as Australia’s house prices sink further amid rising interest rates and sinking consumer confidence.

Figures released by CoreLogic on Friday show Sydney and Melbourne had the nation’s biggest house price slumps in June – down 1.6 per cent and 1.1 per cent respectively.

The housing boom in both cities ran out of steam earlier this year as prices flatlined, then started to tumble.

But CoreLogic research director Tim Lawless said the downturn is starting to catch up with other capitals and regional areas.

He said that while Sydney and Melbourne would have “more pronounced” downturns than other areas this year, prices in other cities  would start to fall in 2023.

It comes after the Reserve Bank of Australia started to lift official interest rates for the first time since 2010, including a bigger-than-expected 50-basis-point hike in June.

Rates are expected to continue to rise further – another 50-basis point hike is tipped at next week’s RBA meeting – which would put more pressure on mortgage holders as home loan rates rise accordingly, further dampening consumer confidence.

Commonwealth Bank, the nation’s largest lender, surprised customers with a 1.4 percentage point increase in some of its fixed interest loans on Thursday.

“Coming into next year, it’s likely that we will see similar, if not larger, falls in some of the capitals that have been more insulated so far, as higher interest rates and high inflation, and low confidence, impact on the market more broadly,” Mr Lawless said

House prices falling  in most cities

Hobart has already joined the two big cities in a downturn, with a month-on-month fall of 0.2 per cent in June.

Even Queensland, which has been traditionally strong throughout the pandemic, seems to be heading towards a fall.

“Brisbane was virtually flat over the month, only up 0.1 per cent,” Mr Lawless said.

“If this slowing trajectory continues in Brisbane, then chances are we could see that market starting to dip into negative movements next month as well.”

Adelaide has emerged from the first half of the year with the strongest housing market. Of the capitals, it was the only one to record a house price rise of more than 1 per cent in June.

Darwin prices were up 0.9 per cent for the month, Perth was up 0.4 per cent and Canberra 0.3 per cent.

It follows AMP Capital chief economist Shane Oliver telling The New Daily in March that cities such as Adelaide, Brisbane and Perth had experienced strong recent price rises as they never faced the same affordability issues as Sydney and Melbourne. But Dr Oliver said they were unlikely to experience rapid growth for much longer.

Falling prices turning back time

Although falling house values will be a setback for each state’s property market, it will hit harder for some more than others.

Banks such as NAB and Commonwealth Bank are forecasting price falls of 10 per cent in 2023, while the RBA expects real property prices will fall 15 per cent if interest rates rise by 2 percentage points.

Mr Lawless said such falls would take the national property market back to April 2021 figures.

If prices fell further, by as much as 20 per cent, markets in cities such as Brisbane and Adelaide would be set back by only about 12 months – because both had steep rises during the pandemic.

But the same decline in Sydney and Melbourne, where growth has been much “softer”, would hit harder, setting them back to 2017 values.

“[There will be] very different outcomes, depending on how much values fall and which city they’re falling,” Mr Lawless said.

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