- Australian home prices fell again in May, dragged lower once again by weakness in Sydney and Melbourne, the nation’s largest and most expensive property markets.
- Sydney and Melbourne comprise approximately 60% of Australia’s housing market by value, and 40% by number.
- The price weakness is concentrated at the top end of Australia’s market, with values in most capitals and regional areas higher than a year ago.
Australian home prices fell for an eighth consecutive month in May, dragged lower once again by weakness in Sydney and Melbourne, the nation’s largest and most expensive property markets.
According to CoreLogic’s Home Value Index, national dwelling values slipped 0.1%, extending the streak of consecutive monthly losses to eight.
Over the month, house prices fell 0.1%, outpaced by a 0.3% decline in apartments.
From a year earlier, the median dwelling price fell 0.4%, the first decline seen since October 2012. From the recent cyclical peak in September 2017, the median Australian home price has fallen by 1.1% to $555,274.
However, as seen in the table below, much of the recent weakness has been largely concentrated in just two markets, Sydney and Melbourne.
Values in Melbourne and Sydney fell by 0.5% and 0.2% respectively over the month, which, along with small declines in Perth, Darwin and Canberra, saw the median capital city price fall 0.2% in average weighted terms.
In contrast, prices in Adelaide, Brisbane and Hobart — more affordable markets on Australia’s eastern seaboard — all increased from April.
Continuing the recent trend, regional markets as a whole also bucked the downward trend.
Over the past three months, prices increased in all Australian capitals aside from Sydney and Melbourne, ranging from 0.1% in Perth to 3.7% in Hobart. In contrast, median values in Sydney and Melbourne fell, losing 0.9% and 1.2% respectively.
Due to their sheer size and median value, the declines in Sydney and Melbourne were still enough to offset gains in other capitals and regional areas, seeing the median national value fall 0.3% in average weighted terms.
“Sydney and Melbourne comprise approximately 60% of Australia’s housing market by value, and 40% by number, so the performance of these two cities has a larger effect on the headline market performance,” said Tim Lawless, Head of Research at CoreLogic.
Outright price declines in Sydney, Perth and Darwin, along with a steep deceleration in Melbourne price growth, also explain why nationwide prices fell over the year despite higher prices in all other capitals and in regional areas.
By price range, and largely reflecting recent weakness in Sydney and Melbourne, Lawless said it was the top end of Australia’s housing market that drove the median nationwide price lower over the year.
“Nationally, the only value-based segment of the housing market to record an annual decline has been the most expensive quarter of the market where values were down 1.3% over the past 12 months,” he said.
“Simultaneously, the most affordable quarter of the market saw values rise by 1% and the broad middle of the market recorded a 2.3% rise in dwelling values over the year.”
Lawless said from the recent cyclical price peak, the most expensive quarter of Sydney’s market has fallen by 7.1%, and by 3.3% in Melbourne, partially reflecting the introduction of tighter lending standards.
However, he believes its not been the sole factor behind recent declines, pointing out that housing affordability constraints are still acute in Sydney and Melbourne.
“While credit availability is arguably the major driver of the housing market slowdown, other factors are also at play, particularly in Sydney and Melbourne where the median dwelling price to income ratio is 9.3 and 8.0 respectively, significantly higher than other capitals,” he said.
“With dwelling values so high relative to incomes, and little in the way of income growth, saving for a deposit and funding higher transnational costs are likely to be more challenging than servicing a mortgage for perspective buyers.”
Despite the weakness at the top end of the housing market, Lawless says it’s clear that prices across the majority of regions and valuation ranges aren’t falling by any significant margin, if at all, at present.
“Although the exuberance has left the housing market and conditions have been dampened, it is clear that values are not falling off a cliff,” he says.
“While the outlook for housing remains one where headline trends are likely to remain negative, we certainly don’t see dwelling values declining significantly.”
This table from CoreLogic has further detail on price movements by capital and dwelling type over the past month, quarter and year.