Aussie house values see record falls

Oksana Patron

10 January 2023

Although Australian home values recorded the largest declines on record, with further falls expected in the months ahead, they were still 16% higher at the end of 2022 than five years ago, according to data from CoreLogic.

The downturn was led by Australia’s three largest capital cities, with Sydney home values registering a peak-to-trough decline of 13%, followed by Brisbane’s falls of 10% and Melbourne’s values sliding 8.6% from the peak.

According to CoreLogic, which saw its Daily Home Value Index (HVI) hit a record decline of -8.4% on January 7, the drop had come off a high base with the sharp decline in dwelling values following an upswing of 28.9% between September 2020 and May 2021, the fastest rise in home values nationally on record.

January’s reading also confirmed the ‘new territory’, breaking the previous record in peak-to-trough declines of -8.38% between October 2017 and June 2019.

However, what differed in the latest decline from that previously recorded was the fact that it played out in less than nine months while, by comparison, the previous housing downturn lasted 20 months.

The latest decline was driven by the recent cycle of rate hikes at the fastest pace on record, which significantly diminished the borrowing capacity and helped dissuade potential buyers altogether, as well as the high levels of debt of Australian households, with an estimated housing debt-to-income ratio sitting at 188.5% compared to 162.0% a decade ago and 130.2% in 2002.

Also, higher inflationary pressures combined with a post-lockdown surge in spending eroded household savings, which could be utilised for a home loan deposit. This trend was also reflected in low consumer sentiment figures, which plunged to near-recessionary levels and traditionally coincides with fewer home sales.

Softer housing demand may also reflect Australia’s ‘hangover’ from the elevated sales and listings activity through the 2021 boom, when an estimated 619,531 transactions, according to CoreLogic, occurred over the calendar year which was the highest volume of housing sales in more than 18 years.

The coming months would see housing market conditions still soft as the underlying cash rate was likely to see further increase in 2023, with market expectations pricing a peak of around 4%.

On top of that, ongoing increases in interest rates would further erode the borrowing capacity and likely prolong the country’s housing downturn until interest rates stabilise.