Aussie property prices fall at fastest pace on record

The Reserve Bank’s war on inflation has caused the property market to plummet at the fastest pace on record over the last year, with Australian home values shedding -8.40% since their May 2022 peak.

The previous largest peak-to-trough decline, according to property research firm CoreLogic, occurred between October 2017 and June 2019 when home values fell -8.38% over 20 months.

In comparison, the price drops brought about by this latest property downturn have occurred over a period of just eight months and are expected to continue as more home loan rate rises take their toll.

Australia’s three largest capital cities have been leading the pack, with home values falling by -13% in Sydney, -10% in Brisbane, and -8.6% in Melbourne.

CoreLogic’s head of residential research, Eliza Owen, said surging interest rates were the main culprit behind the downturn, but the fact that many buyers had already brought forward their home buying plans may also be a factor.

“A 300-basis point increase in the underlying cash rate over just eight months has resulted in a rapid reduction in borrowing capacity, lowering the amount buyers can offer for homes,” she said.

“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 occurred over the calendar year.”

Official cash rate and average variable rates in Australia

Despite the steep drop and signs there is more to come, Australians will be heartened to know that there’s still a long way to go before the gains recorded over 2021 are erased.

“The sharp decline in dwelling values follows an upswing of 28.9% between September 2020 and May 2022, which was the fastest rise in home values nationally on record,” Owen said.

“The fall in national home values may be the largest peak-to-trough decline on record, but at the end of 2022 home values were still 16.0% higher than they were five years ago, and 59.8% higher than they were 10 years ago.”

Concerns about Australians’ ability to weather the current storm centre around borrowers’ vulnerability to rate hikes, which is currently more acute than in previous cycles given the country’s worryingly high levels of indebtedness.

By the Reserve Bank of Australia’s estimates, housing debt-to-income ratios currently sit at 188.5%, up from 162% a decade ago and 130.2% in 2002.

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But there’s a cap to how high rates are expected to go, with Westpac economists forecasting inflation will ease in the second half of 2023 as unemployment edges up and consumer spending finally begins to slow.

The major bank expects the cash rate will reach 3.85% by May this year. Assuming lenders pass on the rate rise in full to their customers, the average variable rate loan in our database would jump to 6.41% p.a.

Following that, Westpac has pencilled in around 100 basis points worth of cuts beginning in the March 2024 quarter, which would bring the cash rate back down to 2.85% by the end of the year.

For more information, visit our RBA interest rate tracker page. And if you feel that refinancing is in order, be sure to visit our home loan comparison page, where you’ll be able to filter your search by rate and type.