- Australian capital city home prices fell by 1.3% in December, the largest one-month decline since 1983.
- It looks like a similar result may be reported for January, according to CoreLogic’s daily data.
- The housing downturn is already weighing on Australia’s residential construction sector. There are concerns it could spread to the broader economy, especially household spending.
Australian capital city home prices fell by 1.3% in December, according to CoreLogic’s Home Value Index, registering the largest one-month percentage fall since 1983.
The declines largely reflected steep and accelerating falls in Sydney and Melbourne, Australia’s largest and most expensive property markets, where median home prices slid by 1.8% and 1.5% respectively.
In the absence of an unlikely and unexpected lift in prices over the next few days, it looks like those trends will continue in January.
According to CoreLogic’s daily Home Value Index, median prices in Sydney and Melbourne have fallen 1.2% and 1.5% respectively so far during the month, including 0.3% and 0.4% drop just last week.
Despite flat to slightly higher prices in Australia’s remaining state capital cities last week, median prices in Brisbane, Adelaide and Perth have also softened from December, ranging from 0.3% to 0.8% so far in January.
Combined, median values in Australia’s largest capital cities have fallen 1.1% so far this month in average weighted terms, extending the drop over the past year to 7.1%.
The annual decline, like the monthly data seen so far in January, reflects steep falls in Sydney and Melbourne, along with continued losses in Perth.
While tighter home loan lending standards has been the chief catalyst behind weaker demand, along with other factors such as lower foreign investor activity and expectations that prices are likely to fall further, supply is another factor behind the drop in prices in Australia’s largest markets.
According to CoreLogic, there are currently 25,038 and 31,766 homes on the market in Sydney and Melbourne, up 23.7% and 34.1% respectively on the levels of a year ago. That growth has come despite a steep fall in new property listings in both cities over the same period, underlining just how weak demand is at present.
Over the past year, it’s been a similar story in most other Australian capital cities with stock sitting on the market higher despite a decline in new listings.
The only exception has been Hobart, Australia’s hottest capital city housing market in terms of price growth over the past year, where new listings are increasing compared to what what was seen a year ago.
There’s also growing evidence to suggest that weaker home prices in Australia’s largest cities are starting to impact household behaviour, weighing on spending levels and sentiment.
The growing risk of negative spillover effects from the housing downturn into other parts of the Australian economy is one reason why financial markets are currently pricing in a greater than 60% chance that the RBA cash rate will be cut by 25 basis points by the end of this year.
Nearer-term, the final report from Australia’s Financial Services Royal Commission — to be released on Monday — carries the potential to amplify or reduce concerns about the longer-term outlook for the housing market.
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