- Australian home prices fell sharply in July, recording the largest monthly in nearly seven years.
- Prices fell in a majority of capitals, and in regional centres. The declines were once again led by falls in Melbourne and Sydney.
- CoreLogic expects prices will continue to fall in the second half of the year, albeit in a measured manner.
Australian home prices fell sharply in July, recording the largest monthly in nearly seven years.
And, unlike previous months, the weakness was not just concentrated in Sydney and Melbourne but also many smaller capitals as well as regional areas.
CoreLogic’s Home Value Index slumped 0.6% over the month, the largest percentage decline since September 2011.
The decline, faster than the 0.2% decline seen in June, left prices down 0.9% over the past three months, the steepest fall since January 2012.
From a year earlier, Australia’s median home price fell 1.9% to $554,263, the largest percentage decline in six years. House prices fell 2% over the year to $571,124 in average weighted terms, faster than the drop in unit values which slipped 0.3% to $515,663.
As seen in the table below, prices fell in five of Australia’s eight capital cities in July, as well as regional areas.
Capital city prices fell by 2.4% over the year on an average weighted basis to $650,165, a performance in stark contrast to regional areas where values increase 1.6% to $367,067.
“Across the capital cities, Melbourne has been leading the downturn with the quarterly rate of decline outpacing Sydney since May this year,” said Tim Lawless, Head of Research at CoreLogic.
“Melbourne dwelling values were down 1.8% over the past three months, followed by Perth and Sydney.
“Melbourne’s decline phase commenced five months later than Sydney’s, with the market peaking in November last year.
“Since that time, Melbourne dwelling values have fallen by 2.9%, while in Sydney, where values peaked twelve months ago, the market is down 5.4%.”
As has been the case for several months, CoreLogic said the most acute declines in Melbourne and Sydney over the past year have occurred at the top end of the market.
“The starkest annual performance differential is in Melbourne where the top quartile has seen values fall 4.1% over the past 12 months while property values across the lower quartile are 7.5% higher,” Lawless said.
“Similarly, in Sydney, dwelling values are down 8% across the most expensive quarter of the market while the most affordable quarter of the market has seen values fall by a much lower 1.8% over the past 12 months”.
Lawless said the divergence between the top and lower end of these markets reflected a combination of tighter lending standards and stamp duty concessions introduced by the New South Wales and Victorian state government’s in 2017, creating headwinds for prices expensive property while helping to support demand at the lower end of valuations.
“The focus on high debt-to-income ratios will intuitively impact the Sydney and Melbourne housing markets more than other cities due to demonstrably high dwelling prices relative to household incomes,” Lawless said.
While less impacted by the gradual rollout of tighter lending standards, it now appears the reversal in Sydney and Melbourne home prices is now starting to impact values in markets that had, up until recently, outperformed the national average.
“Those cities where values continue to trend higher have also seen a sharp reduction in their rate of capital gain,” Lawless said.
“In Brisbane and Adelaide, where housing values were rising at a more sustainable pace over the past five years, the annual rate of capital gains has weakened.
“In Brisbane, the annual rate of growth has eased from 2.9% a year ago to 1.2% over the past twelve months and in Adelaide the annual growth rate has dropped from 5.4% a year ago to just 0.7% over the most recent twelve month period.”
Even Hobart, currently the hottest capital city housing market in terms of annual price growth, is also showing signs of cooling, Lawless said.
“Dwelling values were steady over the month and the annual rate of growth slowed to 11.5% — still strong but the slowest annual growth rate since February 2017,” he said.
Prices in regional areas, having defied the downturn in Australia’s largest cities in recent months, also declined in July, leaving the average weighted price over the past three months down 0.2%.
“[This was] driven by falls across regional New South Wales, regional Queensland and regional Western Australia,” Lawless said.
“While three of the seven ‘rest of state’ regions saw a fall in values over the three month period, the pace of growth across the remaining regional areas has clearly decelerated, contributing to the overall softer result.”
More broadly, CoreLogic says it cannot see any factors that may halt or reverse price declines in the second half of the year, suggesting a combination of tighter lending standards, an increase in new housing supply and recent migratory shifts will continue to weigh on values.
“The availability of credit has been a significant factor contributing to the slowdown,” Lawless said, referring to tighter loan serviceability requirements that have been introduced over the past year.
He also says that a strong supply pipeline of new apartment stock, at a time when investor demand is likely to be weak, will continue to put downward pressure on prices.
“Coupled with high supply, key segments of demand, including domestic investors and foreign buyers, have thinned out which could see downward pressure on prices in those areas where new projects are numerous.
“Market factors such as low rental yields and dim prospects for short to medium-term capital gains are also likely to quell investment demand.”