Australia’s housing market has moved into a downturn for the first time in more than three years, with national capital city house prices falling 1.4 per cent and unit prices dropping 1.2 per cent in the June quarter. According to data from the online real estate company Domain, this shift follows three years of uninterrupted price growth, driven by higher interest rates, affordability constraints, and waning confidence amongst buyers.
Market Shifts and Regional Divergence
While the national trend points toward a cooling market, the impact is not uniform across all capital cities. Domain’s chief of research and economics, Nicola Powell, noted that Sydney, Melbourne, and Canberra are really leading the downturn. Conversely, Adelaide remains the only capital city where house prices accelerated during the June quarter. Despite the recent declines, house prices in Adelaide, Brisbane, Perth, and Hobart are still holding at record highs, according to Domain.
Did you know? While house prices have shown mixed results across cities, unit prices have fallen in every capital city except for Darwin. Dr. Powell suggests this indicates that investors have become nervous.
The “Perfect Storm” of Economic Factors
Property economist Cameron Kusher has described the current market conditions as a “perfect storm,” citing a combination of low affordability, low sentiment toward housing, and a weakening economy with productivity growth terrible. Writing on the outlook for dwelling values, Mr. Kusher predicted that this downturn could turn out to be larger than the 7.5 per cent downturn seen a few years back. He noted that factors such as high inflation and a lack of productivity growth are likely to keep pressure on the market for some time.
Data provided by Barrenjoey banks analyst Jonathan Mott to a Senate Committee highlights a reduction in mortgage demand. Since the start of February, home loan applications have fallen by around 23 per cent. Broken down by segment, investor demand has seen the steepest decline at 35 per cent, followed by first-home buyers at 19 per cent and owner-occupiers to upgraders at 15 per cent.
Is a Market Crash Imminent?
Despite the cooling indicators, industry experts suggest a total market collapse is unlikely. Dr. Powell explained that the current trend is more of a “pullback” than a free-fall. Many sellers are choosing to wait until market conditions improve, which limits the number of new sellers coming to the market.
Mr. Mott suggests that a prolonged period of flat price growth could actually improve the sustainability of the Australian housing market. He noted that if prices remained flat in nominal terms for 10 to 15 years, it would result in a decline in real terms, thereby improving affordability.
Frequently Asked Questions
- Are all property prices falling in Australia? No. While national averages are down, Adelaide continues to see price acceleration, and several other capitals are still at record highs despite slowing growth.
- Why are unit prices falling faster than house prices? According to Dr. Powell, the broad decline in unit prices suggests investors are becoming nervous and pulling back from the market.
- Will this downturn make housing more affordable? Not necessarily. Cameron Kusher notes that because interest rates won’t be reduced for some time and previous value increases were significant, the current declines may not improve affordability greatly.
Pro Tip: If you are considering entering the market, remember that property downturns can sometimes provide upgrading opportunities, as more expensive properties are seeing larger value falls.
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