Australia’s housing slump is spreading and accelerating. Prices in Sydney and Melbourne fall below levels of a year ago, sales plunge

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Biggest monthly drop in nnational house price index since 1983.

By Wolf Richter for WOLF STREET.

House prices in Sydney and Melbourne – among the world’s most glorious housing bubbles – are collapsing, after inflation in the second quarter hit 6.1% and is expected to rise in the third quarter, and after the Reserve Bank of Australia has raised rates by 175 basis points since May, including 50 basis points in August, to a mere 1.85%. And look at what housing is doing: not only has it failed as an inflation hedge, it’s collapsing.

In Sydney, house prices fell 2.3% in August from July and 5.9% over the past three months, according to CoreLogic. Since January’s peak, the home value index has fallen 7.4%.

And surprisingly, house prices are now down 2.5% from August of last year. I mean, what kind of horror show is this?

In Melbourne, the home value index fell 1.2% for the month, 3.8% over the past three months, 4.6% from February’s peak and, shockingly , by 2.1% compared to August of last year.

Nationally, CoreLogic’s home value index fell 1.6% in August from July, the biggest monthly decline since 1983.

This chart shows price changes on a three-month moving basis for the five major capitals (chart via CoreLogic):

“It’s hard to see house prices stabilizing until interest rates bottom out and consumer sentiment starts to improve,” CoreLogic said.

Month on month, house prices fell in seven of the eight capitals. Only Darwin hung on with a win.

Over the three-month period, five capitals have now recorded declines, including Brisbane, which joined the club in August.

“It was only two months ago that the Brisbane property market peaked after recording a 42.7% boom in values [since the beginning of the pandemic]. Over the past two months, the market has reversed sharply with values ​​down 1.8% in August after falling 0.8% in July,” CoreLogic said.

House prices, August 2022

Mom

3 months

Annual

Median, A$

sydney

-2.3%

-5.9%

-2.5%

1,066,493

melbourne

-1.2%

-3.8%

-2.1%

782,053

Brisbane

-1.8%

-2.5%

17.5%

762 284

Adelaide

-0.1%

1.6%

21.8%

652 959

Perth

-0.2%

0.4%

4.9%

561 781

Darwin

0.9%

2.3%

6.3%

512 531

Canberra

-1.7%

-2.6%

7.8%

909 748

Hobart

-1.5%

-3.3%

5.8%

714,370

Sales have plunged.

In Sydney, sales fell 35% in the three months to August compared to the same period last year; in Canberra, sales fell by 19% and in Melbourne by 16%, according to CoreLogic estimates. Across Australia, sales fell by 15%.

As the normally busy spring and summer season approaches, “we expect to see less buying activity as higher interest rates and weak sentiment continue to weigh on demand. If this scenario plays out, the net result will be an accumulation of reported supply which could further weigh on values,” CoreLogic said.

Suddenly a lot of inventory.

And suddenly there’s plenty to choose from: “Sydney and Melbourne, where the housing downturn is more advanced, are already seeing total advertised inventory rising above average levels, and there are chances are that other capitals will follow as enrollment increases in the spring and demand continues to decline,” CoreLogic said.

In the eight capitals, the number of houses put up for sale increased by 11% compared to a year ago. New registrations in the past 28 days in capitals were well above the previous three years, but down from 2018 (chart via CoreLogic):

But not panicked yet.

This slowdown comes after ridiculous price gains, driven by the RBA’s QE and interest rate crackdown. The price spikes from the onset of Covid to the respective highs earlier this year, according to data from CoreLogic:

  1. Adelaide +45%
  2. Brisbane +43%
  3. Hobart +38%
  4. Canberra +38%
  5. Darwin +31%
  6. Sydney +28%
  7. Perth +26%
  8. Melbourne +17%

House prices are down year-on-year in Sydney and Melbourne. But in terms of negative equity, most homeowners in those two markets who bought before August of last year, and most homeowners in other markets who bought before 2022 still have positive equity in their homes. , given the huge price spikes.

Across the eight capitals, “a 15% decline from peak to trough would bring CoreLogic’s combined capitals index roughly back to March 2021 levels,” CoreLogic said.

In addition, buyers make down payments and pay off principal with their mortgage payments, further increasing their principal. And “widespread negative equity risk remains low,” CoreLogic said.

So no problem – if the decline in house prices magically stops at 15%.

Not everyone is so optimistic.

Shane Oliver, chief economist at AMP Capital, a global investment manager headquartered in Sydney, told ABC News that this downturn could be the end of a 25-year property boom.

“Residential property price declines over the past 25 years have been mostly moderate, with prices falling less than 10%, and brief, with prices rebounding quickly to new highs as rates fell. to new lows,” he said.

“This cycle may be different – both in terms of depth and recovery time – thanks to a combination of high household debt levels, high house prices relative to income levels and the end of of the long-term downward trend in interest rates,” he said.

If the RBA’s key rate is raised to 4%, as expected by the money market, he said, “it would more than double household interest payments and push total mortgage repayments to low levels. record against revenue and would likely lead to a drop of around 30%”. in prices. But OK, it was really fun while it lasted.

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