Housing downturn: the worst not over yet

Oksana Patron

1 November 2022

The worst of the decline phase in housing downturn is not over yet, despite the easing in the pace of decline, as Australian borrowers still need to come to terms with interest rate hikes and persistently high inflation, according to CoreLogic.

Although most of capital cities and regional regions saw a drop in housing value last month, with the CoreLogic’s national Home Value Index (HVI) having fallen a further -1.2% in October and marking sixth month of consistent declines, the rate of declines remained very diverse.

For example, Sydney and Melbourne saw the pace of falls having eased over the last two and three months, respectively, but falls in housing values in Brisbane gathered momentum and saw the most rapid decline compared to any other capital city or rest-of-state regions.

Also, house values continued to fall at a faster rate than unit values across most regions, with capital city unit values having dropped in October by -0.7% compared to a -1.2% slide in house values.

According to CoreLogic’s data, capital city house value went up by 29.9% during the upswing which was more than double the rise in unit values at 13.2% and since the peak in April, capital city house values dropped by -7.2% while unit values were down -4.2%.

Across the capital cities the month-on-month decline ranged from a -2.0% fall in Brisbane to Perth where dwelling values nudged -0.2% lower.  Across the rest-of-state regions, monthly falls of more than -1% were recorded in Regional NSW (-1.7%), Regional Victoria (-1.4%) and Regional Queensland (-1.3%).

Regional South Australia was the only region which did not follow the path of the rest of the regions and did not register a drop in housing value in October.

However, CoreLogic’s research director, Tim Lawless warned it was probably “still too early to claim the worst of the decline phase is over” and said there was still a genuine risk to see the rate of decline re-accelerate as interest rates rise further and household balance sheets would become more thinly stretched.

“To-date, the housing downturn has remained orderly, at least in the context of the significant upswing in values. This is supported by a below-average flow of new listings that is keeping overall inventory levels contained. There’s also tight labour market conditions, an accrual of borrower savings and a larger than normal cohort of fixed interest rate borrowers, who have so far been insulated from the rapid rise in interest rates,” he said.

According to Lawless, the smaller decline in values across the unit sector could be attributed to the more affordable price points across the medium to high density sector.

“The gap between median house and unit values increased to record levels through the COVID upswing.  With borrowing capacity being hit hard as interest rates rise, it’s likely more housing demand has been diverted towards more affordable sectors of the market,” he added.