How bad is the housing downturn? Let’s look at Australian property and home loans
After last year’s record-shattering property boom, Australia’s red hot housing market has seemingly cooled off. Here’s a rundown of what’s happening right now and why.
Quick facts
- Corelogic reports a national slowdown in sales rates and dwelling values, though smaller capitals like Adelaide appear to be going strong.
- Home loan lending has decreased 4.4% over July, especially for first home buyers (whose lending numbers fell 9.8%).
- Rents have shot up nearly 10% over the last year.
Prices are slipping – but they’re still high
Numbers can be a little misleading. Last year, the pandemic property boom caused a record price growth of 22.4%, mostly due to a dynamite combo of cashed up buyers and low interest rates. This year on the other hand, prices have only grown 8%. So while it’s technically accurate to say prices have dropped, they’ve still increased overall.
What’s worse, the price drops have mostly been seen in the most expensive lots – not the ones most people are trying to buy.
According to Corelogic, the cost of relatively cheaper properties (those in the bottom 25%) rose 3.4% in the three months to July, while the top quarter dipped by 1.4%.
“This is something we would expect to see at the cusp of a market change,” says CoreLogic’s head of residential research, Eliza Owen, in a statement to The Sydney Morning Herald.
“The high end of the market tends to be the first mover, and […] more volatile... the lower end is more of a slow and steady performer."
Owens predicts the lower priced homes will eventually follow the high ones in price relief, but the downturn they experience won’t be nearly as severe.
Despite market forces, it’s inevitable prices will still rise over time, which can be great news for sellers hoping to maximise their capital growth. However, lagging values is a symptom of a cooling housing market, which is good news for buyers. Those who’ve prepared may find it slightly easier to ‘pass in’ their bids at auction and negotiate a better price – at least compared to last year.
Property sales dragged down by heavy interest rates
Growth in the housing sector is highly dependent on the cost of housing finance, as the last thirty years of property trends have shown us. With the Reserve Bank hiking interest rates and new regulations clamping down on serviceability assessments, first home buyers find themselves up against it.
After all, three successive 0.50% hikes have so far done little to dampen inflation. They have, however, done lots to dampen access to home loans, which explains the eye-catching 9.8% drop in first home buyer lending over June.
Meanwhile, sales rates trended down in capital cities over July, averaging around 54% compared to July 2021’s decent 75%. Properties Australia-wide are also taking longer to sell, sitting on the market a median 32 days over the three months to July, while median vendor discounts dropped 4% in the same period.
As the cash rate climbs, these numbers will likely plummet even further.
“Clearly, the RBA is first and foremost in inflation fighting mode,” says Corelogic research director Tim Lawless.
“The trajectory of home values will depend on how fast and how high interest rates move, along with the performance of the broader Australian economy, labour markets and demographic trends.”
RELATED: Rising interest rates aren’t the only reason why it’s harder to get a home loan
Westpac projects the cash rate will peak at 3.35% in February 2023, which will push variable interest rates into the 6% to 7% territory – numbers dreaded by borrowers.
However, Lawless notes the RBA will probably overlook “weakness in housing demand” and other signs of economic slowdown in their battle against runaway inflation, which hit 6.1% in the June quarter.
“As the cash rate finds a ceiling,” he says, “that will probably be the cue for housing values to find a floor.”
We haven’t found the floor yet, but we’re certainly looking for it.
Loan details
Repayment change if rates go up
How have banks responded to the housing slowdown?
Both the RBA and major banks have come under fire for raising rates despite cost of living pressures on customers. To counteract this, many lenders have boosted savings accounts rates to 2% - 3% levels. Some, like CommBank, Westpac, and Macquarie, have even slashed long-term fixed rates in the hopes of enticing new customers.
However, jumping on these fixed deals too quickly could backfire on borrowers. If the RBA goes too far with its aggressive monetary policy, causes a recession, and has to cut rates once more, then people who’ve fixed through the downturn will find themselves stuck at higher interest rates in a time of severe economic stress – unless they can refinance.
“It is akin to the old saying that, ‘if you have your head in the oven and feet in the freezer, you feel OK, on average’,” says Barrenjoey expert banking analyst, Jon Mott. “In banking, it is the tail that matters, the last 5% to 10% of borrowers.”
“If interest rates continue to rise sharply, and stay around these levels, there will be a ‘fat tail’ of borrowers who will simply not be able to afford to meet their repayments.”
The consequences of leaving these borrowers behind could be disastrous.
“For the first time in several decades, we are likely to see a wave of fully employed borrowers falling into delinquency as they simply can’t make ends meet,” warns Mott.
But despite pressure on funding costs from the RBA rate hikes, NAB recently reported a $1.8 billion third quarter profit, with chief executive Ross McEwan stating the bank was “in good shape for this evolving environment”.
CommBank is also poised to earn $250 - $300 million more due to rate rises, according to analysts. Mortgages might be feeling the heat, banks certainly aren’t.
Customers comparing home loans will need therefore to be mindful of which lenders have taken the opportunity to look out for customers – and which just looked at their profits.
Head to our home loans hub for more market insights, or if you’re ready to buy in, compare low interest rate home loans below.
Compare low interest rate home loans - last updated 19 March 2024
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Featured Product
Mozo experts choice awards won:
- Low Cost Home Loan - 2024
Unloan Variable
Owner Occupier, Refinance Only, LVR <80%
interest rate
comparison rate
Initial monthly repayment5.99% p.a. variable5.90% p.a.For refinancers only. Built by CommBank, the Unloan is the first home loan with an increasing discount (conditions apply) for borrowers. No application or banking fees. No monthly account keeping or early exit fees. Apply in as little as 10 minutes.
CompareCompareUnloan Variable
For refinancers only. Built by CommBank, the Unloan is the first home loan with an increasing discount (conditions apply) for borrowers. No application or banking fees. No monthly account keeping or early exit fees. Apply in as little as 10 minutes.
- interest rate
- 5.99% p.a. variable
- comparison rate
- 5.90% p.a.
- interest rate
- 5.99% p.a. variable
- comparison rate
- 5.90% p.a.
- Upfront fees
- $0
- Ongoing fees
- $0.00
- Discharge Fee
- $0.00
- Extra repayments
- yes - free
- Redraw facility
- yes - free
- Offset account
- no
- Maximum loan to value ratio
- 80.00%
- minimum borrowing amount
- $10,000
- maximum borrowing amount
- $10,000,000
- type of mortgage
- Variable
- Repayment types
- Principal & Interest
- Availability
- Owner Occupier
- Repayment options
- Weekly, Fortnightly, Monthly
- Special Offers
- -
Read our Mozo Review to learn more about the Unloan Unloan Variable
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Neat Home Loan
Owner Occupier, Principal & Interest, LVR <60%
interest rate
comparison rate
Initial monthly repayment6.14% p.a. variable6.16% p.a.Competitively-priced variable rate loan. Ideal for owner occupiers and investors. No service fees to pay. Make free extra repayments and redraws. Flexible repayment schedule available.
CompareCompareNeat Home Loan
Competitively-priced variable rate loan. Ideal for owner occupiers and investors. No service fees to pay. Make free extra repayments and redraws. Flexible repayment schedule available.
- interest rate
- 6.14% p.a. variable
- comparison rate
- 6.16% p.a.
- interest rate
- 6.14% p.a. variable
- comparison rate
- 6.16% p.a.
- Upfront fees
- $250
- Ongoing fees
- $0.00
- Discharge Fee
- $300.00
- Extra repayments
- yes - free
- Redraw facility
- yes - free
- Offset account
- no
- Maximum loan to value ratio
- 60.00%
- minimum borrowing amount
- $80,000
- maximum borrowing amount
- $5,000,000
- type of mortgage
- Variable
- Repayment types
- Principal & Interest
- Availability
- Owner Occupier
- Repayment options
- Weekly, Fortnightly, Monthly
- Special Offers
- -
Read our Mozo Review to learn more about the ubank Neat Home Loan
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Offset Home Loan
Package, Owner Occupier, LVR<60%, Principal & Interest
interest rate
comparison rate
Initial monthly repayment6.15% p.a. variable6.40% p.a.Ability to open up to 10 offset accounts per loan account. Fast online application. Linked Debit Mastercard® with fee-free access at ATMs across Australia. Package a credit card with your home loan and the annual card fee will be waived (T&Cs apply). 40% deposit required.
CompareCompareOffset Home Loan
Ability to open up to 10 offset accounts per loan account. Fast online application. Linked Debit Mastercard® with fee-free access at ATMs across Australia. Package a credit card with your home loan and the annual card fee will be waived (T&Cs apply). 40% deposit required.
- interest rate
- 6.15% p.a. variable
- comparison rate
- 6.40% p.a.
- interest rate
- 6.15% p.a. variable
- comparison rate
- 6.40% p.a.
- Upfront fees
- $350
- Ongoing fees
- $248.00 yearly
- Discharge Fee
- $400.00
- Extra repayments
- yes - free
- Redraw facility
- yes - free
- Offset account
- yes
- Maximum loan to value ratio
- 60.00%
- minimum borrowing amount
- $150,000
- maximum borrowing amount
- $10,000,000
- type of mortgage
- Variable
- Repayment types
- Principal & Interest
- Availability
- Owner Occupier
- Repayment options
- Monthly
- Special Offers
- -
Read our Mozo Review to learn more about the Macquarie Offset Home Loan
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Featured Product
Ultra Low Rate <95% LVR
Owner Occupier, Principal & Interest
interest rate
comparison rate
Initial monthly repayment6.30% p.a. variable6.58% p.a.Only 5% deposit required to apply. Low upfront costs to pay. No LMI Required. Unlimited Redraw and additional repayments. No Application or ongoing fees. No guarantors or equity sharing required.
CompareCompareUltra Low Rate <95% LVR
Only 5% deposit required to apply. Low upfront costs to pay. No LMI Required. Unlimited Redraw and additional repayments. No Application or ongoing fees. No guarantors or equity sharing required.
- interest rate
- 6.30% p.a. variable
- comparison rate
- 6.58% p.a.
- interest rate
- 6.30% p.a. variable
- comparison rate
- 6.58% p.a.
- Upfront fees
- $790
- Ongoing fees
- $0.00
- Discharge Fee
- $795.00
- Extra repayments
- yes - free
- Redraw facility
- yes - free
- Offset account
- no
- Maximum loan to value ratio
- 95.00%
- minimum borrowing amount
- $350,000
- maximum borrowing amount
- $2,000,000
- type of mortgage
- Variable
- Repayment types
- Principal & Interest
- Availability
- Owner Occupier
- Repayment options
- Monthly
- Special Offers
- -
Read our Mozo Review to learn more about the Sucasa Ultra Low Rate <95% LVR
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Straight Up
Obliterate, Owner Occupier, Principal & Interest, <50% LVR
interest rate
comparison rate
Initial monthly repayment6.24% p.a. variable6.24% p.a.Get a low variable rate depending on your deposit with Athena’s Straight Up Variable Home Loan. AcceleRATES feature helps you to reduce your home loan even faster (T&Cs apply). Zero fees to pay. Free redraw facility. Handy mobile app to manage your home loan.
CompareCompareStraight Up
Get a low variable rate depending on your deposit with Athena’s Straight Up Variable Home Loan. AcceleRATES feature helps you to reduce your home loan even faster (T&Cs apply). Zero fees to pay. Free redraw facility. Handy mobile app to manage your home loan.
- interest rate
- 6.24% p.a. variable
- comparison rate
- 6.24% p.a.
- interest rate
- 6.24% p.a. variable
- comparison rate
- 6.24% p.a.
- Upfront fees
- $0
- Ongoing fees
- $0.00
- Discharge Fee
- $0.00
- Extra repayments
- yes - free
- Redraw facility
- yes - free
- Offset account
- no
- Maximum loan to value ratio
- 50.00%
- minimum borrowing amount
- $100,000
- maximum borrowing amount
- $2,500,000
- type of mortgage
- Variable
- Repayment types
- Principal & Interest
- Availability
- Owner Occupier
- Repayment options
- Weekly, Fortnightly, Monthly
- Special Offers
- -
Read our Mozo Review to learn more about the Athena Straight Up
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* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.
** Initial monthly repayment figures are estimates only, based on the advertised rate. You can change the loan amount and term in the input boxes at the top of this table. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.
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