Continued property price falls ‘likely to be short-lived’

Property prices in Australia’s capital cities fell for the second successive month in January.

Driving the downturn was Melbourne, which recorded the sharpest decline (-0.6 per cent), followed by the ACT (-0.5 per cent) and Sydney (-0.4 per cent). Capital growth in regional areas meant that prices nationally were unchanged overall in January.

CoreLogic’s Home Value Index, released Monday (3 February), showed that Perth is no longer the market’s capital growth leader. The Western Australian capital is now recording a slower rate of growth than Brisbane and Adelaide over the rolling quarter.

Brisbane and Perth have continued to notch up growth in home values but there has been a clear and steady loss of momentum in these markets, especially in the detached housing sector where value growth has eased more noticeably.

Adelaide has shown a more resilient trend, although the pace of gains is slowing. The city has led the state capitals over the past six months with a 4.8 per cent gain.

Source: CoreLogic

Tim Lawless, Research Director, CoreLogic, said that although national Home Value Index (HVI) is now down 0.3 per cent from the record highs attained in October last year, the declines may soon be arrested and gradually reversed.

“With the first rate cut likely imminent, alongside improving consumer sentiment, we could see some renewed support for housing prices over the coming months,” he said.

“Lower mortgage rates and a subsequent lift in borrowing capacity as well as an undersupply of newly built housing could be setting the foundations for a relatively shallow housing downturn,” Mr Lawless said.

“But the easing cycle for interest rates is likely to be a gradual one, and we also have the ongoing headwinds of affordability constraints, normalising population growth and generally soft economic conditions to contend with.

Source: CoreLogic

“All things considered, the likelihood of a significant growth cycle over the coming year remains low.”

Eleanor Creagh, REA Group Senior Economist, agreed that price declines would end if the Reserve Bank of Australia (RBA) cut rates on 18 February as is widely expected.

“With interest rate cuts on the horizon, the price falls seen over the past two months are likely to be short-lived,” she said.

“As interest rates move lower this year and boost borrowing capacities, improving affordability and buyer confidence are expected to drive renewed demand and price growth.

“The stretched starting point for affordability will, however, likely dampen the uplift in prices compared to prior easing cycles, resulting in the pace of home price growth trailing the strong performance of recent years.”

A buyers’ market in Sydney

While property prices are easing, the prospects of a protracted descent or sharp bust appear remote.

Most economic forecasters are factoring in three to four 25 basis point interest rate cuts from the RBA this year, implying that by years end the cash rate would be at 3.35 per cent to 3.6 per cent, still well above the pre-Covid decade average of 2.55 but offering some respite to borrowers. The official cash rate is currently at 4.35 per cent.

Low levels of newly built housing should also deliver some support to housing values.

“As borrowing capacity rises with lower interest rates, prospective buyers also have the benefit of more advertised stock to choose from.

“Capital city listings are tracking 7.7 per cent higher than a year ago, and some markets are seeing advertised stock levels well above the five-year average for this time of the year, including Sydney, Melbourne, Hobart and the ACT,” Mr Lawless said.

Allen Habbouchi, Principal Licensee, aussieproperty.com, said that although affordability constraints had the Sydney market falling slightly overall, parts of the city were still experiencing red hot demand.

“Prestigious coastal suburbs and the CBD are still commanding ever higher prices, while entry-level buyers who stretched themselves with mortgage repayments that have risen appreciably since they bought a few years ago are suffering,” he said.

“Prices are falling in places like Marsden Park, where people bought when rates were low but now they are having to sell because they cannot keep up with the higher interest rates.”

Although Sydney has recorded a relatively mild 1.7 per cent rise in values over the past 12 months, in dollar terms that equates to almost a $20,000 increase. But not everybody has seen their property increase in value.

Speaking to API Magazine, an owner of a unit in Homebush, who wished to remain anonymous, said she bought three years ago for $650,000 and would now be lucky to get $570,000 for it.

“Even though the rent has gone up from $410 to $650 per week, I’m still left out of pocket with the loan repayments to the tune of $2,000 a month.”

“So I’m now left to decide whether I hold and hope while paying out every month or cut my losses and spend a few years trying to clear the $70,000 loss.”

Two-speed property market

The situation is more pronounced in Canberra, Hobart and Melbourne.

The ACT has recorded the second largest decline among the capitals, down 7.1 per cent or roughly $65,000 below peak levels. Melbourne values are 6.9 per cent below peak levels, the equivalent to a drop of around $57,500 in the median value.

Areas of property price growth are exceedingly scarce in Melbourne.

Hobart has recorded the most significant correction, with dwelling values down 12.5 per cent since moving through record highs in March 2022. In dollar terms, the median value is now approximately $93,600 lower.

A sustained period of relatively high interest rates, a cost of living crisis fuelled by stubbornly challenging inflation levels, and insipid wage growth has meant that many property owners are looking at ways of boosting income and their overall financial security.

According to the API Magazine Property Sentiment Report Q4 2024, reducing debt and profit taking were the two primary reasons sellers were putting their properties on the market.

PropTrack data released Saturday (1 February) shows that Perth remains the top performing capital for annual home price growth (+15.38 per cent), with the comparative affordability of the city’s homes, strong population growth and limited new housing supply contributing to the persistently strong growth of recent years.

Adelaide remains one of the top performing capitals over the past year and prices were 12.41 per cent above January 2024 levels.

In Brisbane, unit prices have outperformed house prices over the past year, increasing by 13.96 per cent and 9.81 per cent respectively.

Despite slowing growth, Brisbane remains one of the strongest performing capital city markets over the past year, with home prices now at a fresh peak and sitting 10.44 per cent above January 2024 levels.

“This prolongs a run of strong growth that has seen Brisbane become the second-most expensive capital, ahead of Melbourne and Canberra, with prices up 84 per cent over the past five years,” Ms Creagh said.

Nationally, rental growth bounced slightly higher in January, up 0.4 per cent over the month. CoreLogic’s national rental index rose just 0.4 per cent between June and December. Every capital recorded a subtle rise in rents over the past month, however, the trend is clearly pointing to an ongoing easing in rental price growth.

On an annual basis, Australian rents were up 4.4 per cent.

The six-month trend in rental growth has turned negative across the two largest markets, Sydney and Melbourne, with rents down 0.4 per cent and 0.6 per cent respectively, with larger falls across the unit sector.