Source: Australian Property Journal
AUSTRALIAN home values recorded the greatest decline on record in the first month of the new year.
CoreLogic’s Daily Home Value Index (HVI) took an 8.40% tumble on 7 January 2023,from its peak on 7 May 2022. This latest index result eclipsed the previous record in peak-to-trough declines, when home values dropped 8.38% between October 2017 and June 2019.
CoreLogic noted that the previous housing downturn between 2017 and 2019 held for 20months, while this latest record has been reached in under nine months. However, this decline comes after the fastest rise in home values nationally on record,with the significant upswing of 28.9% between September 2020 and May 2022.
Even with the record decline, home values at the close of 2022 were still up 16.0% on levels five years ago, and 59.8% higher than they were 10 years ago. The decline can in large part be attributed to the fast succession of interest rate rises by the RBA, with the 300-basis point increase to the underlying cash rate taking its toll on borrowing capacity, while also driving up housing costs.
“Australians are also more indebted today than through historic periods of rate rises, with the latest Reserve Bank of Australia’s estimate of housing debt-to-income ratio sitting at188.5%,” wrote Eliza Owen, head of research at CoreLogic, Australia.
“A decade ago this figure was 162.0% and in 2002 the ratio was 130.2%. Higher household indebtedness may have increased the sensitivity of housing values to interest rate rises.”
Owen added that ongoing higher inflationary pressures paired with a surge in spending after extended lockdowns has also left Australian household saving diminished.
Weaker buyer demand does follow a period of elevated sales and listings throughout the2021 boom, where there were an estimated 619,531 transactions or the highest volume of housing sales in over 18 years. Australia’s three largest capital cities are leading the downturn, with Sydney recording a peak-to-trough decline of 13.0%, Brisbane of 10% and Melbourne of 8.6%. While Perth dwelling values have fallen by less than 1% from an August 2022 peak.
“Over the coming months, housing market conditions are expected to remain soft. The underlying cash rate is likely to see further increases in 2023, with market expectations pricing a peak of around 4%, while the median forecast from Australian economists is lower at 3.6%,” added Owen.
Australia’s housing downturn is expected to carry on until interest rates stabilise, with further increases to continue to impact borrowing capacity.
