Australia’s economic crisis: Perth defies national trend on property values amid sign house prices could fall 20pc
Housing prices in Australia’s capital cities have been caught up in the nation’s widespread economic crisis, with values continuing to fall.
CoreLogic’s Home Value Index, a tool that measures movements in capital city housing markets, recorded its first national fall since September 2020 in May.
Across the last quarter, the value of homes in Melbourne and Sydney has fallen by 1.8 and 2.8 per cent respectively.
While increases have been recorded in Adelaide (5.2 per cent), Brisbane (2.7 per cent) and Perth (2.1 per cent), these rises were not enough to offset the decreases in Melbourne and Sydney.
This meant there was a 0.9 per cent decrease in home values across those five cities in the last quarter.
CoreLogic cited a combination of higher interest rates, rising inventory levels and lower sentiment for these “dampened conditions”.
“There’s been significant speculation around the impact of rising interest rates on the property market and last month’s increase to the cash rate is only one factor causing growth in housing prices to slow or reverse,” CoreLogic research director Tim Lawless said.
“It is important to remember housing market conditions have been weakening over the past year, at least at a macro level.”
Mr Lawless said after the quarterly rate of growth in national dwelling values peaked in May of last year, houses had become less affordable.
“Since then, housing has been getting more unaffordable, households have become increasingly sensitive to higher interest rates as debt levels increased, savings have reduced and lending conditions have tightened,” he said.
“Now we are also seeing high inflation and a higher cost of debt flowing through to less housing demand.”
Chief AMP economist Shane Oliver fears the value of capital city homes will continue to go down.
“Housing downturn is accelerating. Poor affordability, rising rates and poor confidence point to further sharp falls ahead,” he said.
“Top to bottom fall is now more likely to be 15 to 20 per cent.”
CoreLogic’s monthly housing chart for June also noted that those factors “may continue to put downward pressure on the home value index”.
InvestorKit head of research Arjun Paliwal said he expected a “three-speed market” to continue for the rest of the year.
“The first speed, the direction of Sydney and Melbourne, will continue to decline. People there are more sensitive to supply and demand changes that are happening with sentiment and interest rates,” he said.
“As for the second speed, our smaller capitals and massively under supplied regional cities … those regions will continue to grow.”
The final speed that Mr Paliwal identified involved units and townhouses, which he expected to still perform poorly despite costing less than buying a house.
“Many people have this theory that because the price gap from units to houses is so large everyone will jump ship. I don’t feel that will be the case, I still expect many unit markets to perform quite poorly for 2022,” he said
“The taste that’s been left in many people’s mouths post-Covid and the change in lifestyle preferences for space, these behaviours don’t instantly change because price gaps are better.”
On what sellers should do in Melbourne and Sydney, Mr Paliwal said it was not in their favour to “drag out” their processes.
“Adjusting to the advice of sales agents and the right pricing from day one can help you get ahead and collect momentum,” he said.
“Expecting things to get better in time in these two cities isn’t the best advice when it comes to current sellers.”
But he said there was a “massive opportunity” for investors if homeowners were spooked by the national home value index falling overall despite prices increasing in several capital cities.
“When you see our two big cities create some changes in the national data, it can lead to many people in those smaller cities to think that things might not be as rosy even though their fundamentals are jam-packed with solid pieces of growth” Mr Paliwal said.
“As a result, you might see a buying window for savvy investors to pick up properties in strong markets across Australia just because of a little bit of uncertainty from the general public.”
Beyond Melbourne and Sydney, Canberra’s dwelling values also fell by 0.1 per cent in May, its first monthly decline since July, 2019.
The nation’s capital is Australia’s second most expensive property market behind Sydney.