Australian home prices are falling faster and in more locations

  • Australia’s housing downturn became faster and more widespread last month, according to CoreLogic’s Home Value Index for September.
  • The decline was once again led by steep declines in Melbourne, Sydney and Perth, capitals where prices have fallen the fastest so far in 2018.
  • National housing values have now fallen every month over the last year, losing 2.7% in the process. The declines have been larger than the national average in the capitals, especially in Sydney and to a lesser degree Melbourne.

Australia’s housing downturn became faster and more widespread in September, according to CoreLogic’s latest Home Value Index.

Across the country, the median home price fell 0.5% in average weighted terms, led once again by steep declines in Melbourne, Sydney and Perth, those capitals where prices have fallen the fastest so far in 2018.

The national decline was double the 0.3% fall in August.

CoreLogic

“Dwelling values tracked lower across five of the eight capital cities in September while five of the seven ‘rest of state’ regions recorded a fall in values over the month,” said Tim Lawless, Head of Research at CoreLogic, indicating that the declines last month were broad-based.

Home prices nationally fell by 0.6% during the month, once again outpacing a decline in unit values which fell by a smaller 0.1%.

Over the past three months, home prices across the country fell by 1.4% in weighted terms, led once again by houses which slid by 1.5%. Units, in comparison, declined by a smaller 0.9% during this period.

With the pace of price declines accelerating last month, it left Australia’s median home price down 2.7% over the year.

House prices fell by 3.1% over the year in weighted terms, again faster than units which declined by a smaller 1.3%.

However, while prices have now fallen for 12 consecutive months — longer than the average housing market downturn in Australia seen in the past — Lawless says the pace of declines are still modest at this point.

“[This is] hardly a crash, and a slower rate of decline relative to the previous housing market downturn between June 2010 to February 2012 when national dwelling values fell by 3.0% over the first twelve months, declining 6.5% from peak to trough,” he said.

“While the housing market downturn is well entrenched across Darwin and Perth where dwelling values remain 22.1% and 13.2% lower relative to their 2014 peak, Sydney and Melbourne are now the primary drag on the national housing market performance.”

According to Corelogic, Sydney and Melbourne prices fell 0.6% and 0.9% in September, leaving values in both cities down 6.1% and 3.4% respectively from 12 months earlier.

“Not only are these amongst the largest annual falls across the capital cities, but considering Sydney and Melbourne comprise approximately 60% of the national value of housing, the weak conditions in these cities have a substantial drag down effect on the overall national housing market performance,” Lawless said.

Indicating the top end of these markets are continuing to lead price declines, house prices in Sydney and Melbourne have fallen 7.6% and 4.5% respectively over the past year, substantially faster than the 2.6% decline and 0.3% gain in unit values in those respective markets over the same period.

“Dwelling values across Sydney’s most expensive quarter of the market are down 8.4% over the past 12 months while the least expensive quarter of the market is down only 3.3%,” Lawless said.

“The divergence in performance across the broad valuation cohorts is even more significant in Melbourne where the highest value quartile has seen values reduce 6.7% over the past 12 months while the lowest value quartile has actually recorded a 4.1% annual gain in values.”

CoreLogic

Lawless said the divergence between expensive and more affordable segments of the Sydney and Melbourne markets over the past year reflect the impact of stamp duty discounts for first home buyers introduced by the New South Wales and Victoria state governments last year, helping to improve affordability for those looking to enter the market, as well as ongoing affordability constraints at the top-end of the market, partially impacted by lenders reducing their exposure to high loan-to-income borrowers during this period.

“If lenders have reduced their appetite for high debt to income ratio lending, this implies housing demand in expensive cities like Sydney and Melbourne — where dwelling prices remain more than eight times higher than gross household incomes — is likely to be skewed towards the middle to lower end of the market,” he said.

While less-impacted by tighter lending standards given the gulf between prices and household incomes is less extreme than in Sydney and Melbourne, Lawless said there were further signs that conditions in Australia’s smaller capital city and regional markets also softened in September.

“Although dwelling values are still rising on an annual basis in Brisbane, Adelaide, Hobart and Canberra, the rate of capital gain has slowed noticeably in these regions,” he said.

“One year ago, the annual gain in Brisbane was tracking at 2.9% and has since slowed to just 0.8% over the past 12 months.

“Adelaide values were rising at the annual rate of 5.0% a year ago, slowing to 0.7%, while the annual growth rate has slowed from 14.3% in Hobart to 9.3% and Canberra has seen annual gains slide from 7.8% to 2.0%.”

Lawless said the the only capitals to see an improvement in the annual change in housing values over the past year were Perth and Darwin where prices fell at a slower pace than 12 months earlier.

Put another way, prices growth has either decelerated or turned outright negative across all Australian capital city markets over the past year.

The same themes were also evident in regional areas, one segment of Australia’s broader housing market that had fared better than the capitals earlier in the year.

“Regional markets, where housing values have generally been more resilient to falls than in the capital cities, are now showing more challenging conditions,” Lawless said.

CoreLogic

According to the latest data, regional prices fell 0.2% last month in weighted terms, and 0.9% over the past quarter, trimming the gain over the past 12 months to 1.2%.

Given recent trends, annual price growth in regional areas are likely to turn negative too in the months ahead.

Looking ahead, Lawless says prices will continue to face headwinds from tighter lending standards, a slight moderation in net overseas migration, a potential change in the tax treatment of housing and record or near-record residential construction activity in Victoria and NSW.

However, while a potent mix that suggests prices will continue to decline for some time yet, Lawless says that strengthening labour market conditions and still-low borrowing costs are positives that may help to cushion price declines as long as current trends are maintained.

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