Australian home prices fall at ‘fastest rate’ since 2008 financial crisis

According to property analytics firm CoreLogic, home prices in Australia are falling at their fastest pace since the global financial crisis – and market conditions are “likely to worsen” as interest rates continue to rise.

Key Points: Economists estimate that Australian home prices could fall between 12 and 20 per cent during GFCRents. Average property values ​​dropped 8.5 per cent during the past year, rising 9.8 per cent over the past year.

The latest data shows the country’s average property value has fallen 2 percent since the beginning of May to $747,182 (a figure that includes homes and apartments).

“Although the housing market is only three months into the decline … the rate of decline is comparable with the onset of the global financial crisis in 2008 and the sharp decline in the early 1980s,” said Tim Lawless, director of research at CoreLogic.

He emphasized that this was the “fastest rate of decline in home prices” since the GFC and the recession of the 1980s.

But Mr Lawless said that, on average, prices had jumped an average of 28.6 percent from mid-2020 (the low point of the housing market during the COVID-19 pandemic) to April 2022 (when national prices were at their peak).

Regional Australia grew even more, with prices rising 41.1 percent in two years – as smaller towns outside the capital cities experienced a greater influx of city dwellers seeking better lifestyles (as working remotely was the new normal). done).

“In Sydney, where the recession has been particularly sharp, we are seeing the sharpest price drop in nearly 40 years.”

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Property prices in Sydney, Melbourne and Hobart fell sharply in July. (corelogic)

The average price in Australia’s most expensive city fell 2.2 percent in July (making its quarterly deficit 4.7 percent). Despite this, the cost of an average home in Sydney is still around $1.35 million, while an average unit can fetch around $806,000.

Melbourne and Hobart also posted sharp falls last month with prices falling 1.5 per cent in both cities, while Canberra fell by 1.1 per cent.

Prices fell 0.8 percent in Brisbane and regional Australia (their first monthly drop since August 2020).

At the other end of the spectrum, Darwin, Adelaide and Perth were the only capitals where prices actually rose in July (between 0.2 and 0.4 percent). However, it has been a sharp slowdown since May, when the Reserve Bank began aggressively raising the cash rate from its record low.

‘Small and fast’

“I think this recession will be similar to the global financial crisis in that it will be much smaller and faster,” Lawless told ABC News.

According to CoreLogic, Australia’s average property price fell about 8.5 percent over the 11-month period during the GFC.

Adelaide property prices have increased by 3.6 percent in the past three months. (corelogic)

Mr Lawless said the decline in assets is “rapid”, and he would not be surprised if “the current decline turns out to be worse than what we saw during the GFC”.

The key difference, he said, is that governments and central banks are currently determined to roll back trillions of dollars worth of stimulus, in a desperate bid to slash inflation (rather than pump it into the global economy, as they said). after the 2008 crisis).

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Many analysts predict that Australian property prices will fall by an average of 10 to 20 per cent (peak to trough) – the two most expensive cities are likely to see the biggest declines, Sydney and Melbourne.

But even if the worst turns out to be the case, it will not significantly improve housing affordability.

“If we drop, say, 15 percent in national housing prices, it will take prices back to where they were in April 2021.”

How quickly (and by how much) prices will drop will depend on how fast the RBA decides to lift its cash rate target over the next few months.

Brisbane and Adelaide renters are experiencing the fastest rent increase.(CoreLogic)

Since May, the RBA has raised its cash rate target from 0.1 to 1.35 percent.

If the central bank makes another double-sized rate hike on Tuesday (0.5 percentage points), as is widely expected, it would bring the new cash rate down to 1.85 per cent.

Buyer’s market and rising rents

“The market has now become much more in favor of buyers than sellers, especially in markets such as Sydney and Melbourne,” Lawless said.

“Buyers are getting back in the driver’s seat. They have more options, and less urgency.

“But for sellers, it means they need to be more realistic about their pricing expectations, and they should expect more negotiations to happen.”

Tenants also suffer in the current property market. As mortgage repayments to their landlords increase (and more foreign workers and students) return to Australia, rents have risen sharply.

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“The rental market is extremely tight, with vacancy rates around 1 percent or less in many parts of Australia,” Mr Lawless said.

“If you consider the history of rents, it is very rare that housing rents have increased by more than 3 – 4 percent per year.”

But in the last quarter, the national average rents increased by 2.8 percent — and they’ve risen about 10 percent over the past year.

Looking ahead, Mr Lawless said there could be increasing pressure on renters to rent out any spare bedrooms to more flatmates, look for cheaper rents in apartments (rather than houses), or “at home with mom and dad.” Stay”.

“Certainly there’s going to be some negative social consequences from such high rents, which are showing no signs of slowing down at this point in time.”

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