- Australian capital city home prices fell heavily in December, led again by an ugly decline in Sydney.
- Sydney home prices have now officially “corrected”, falling 10% from the cyclical highs last year.
- The Sydney downturn is now the largest in nominal terms since reliable records began, surpassing the 9.6% fall seen in the late 1980s and early 1990s. That just happened to occur before Australia’s economy last fell into recession.
- Prices in Melbourne have fallen 1.2% over the past month, and are accelerating.
- Listings in all capital city markets except for Darwin are now higher than they were a year ago. New listings are also higher in all capitals except for Sydney and Melbourne over the same period.
- Unless demand remains firm in smaller capital city markets, prices in these locations may also start to edge lower if they are’t already.
Australian capital city home prices fell heavily in December, led again by an ugly decline in Sydney, Australia’s largest and most expensive property market.
According to CoreLogic, Sydney’s median home price tumbled by a further 0.5% last week, extending the drop over the past four weeks to 1.8%.
With that weekly decline, following falls of 0.5% and 0.3% in the prior two weeks, Sydney’s median home price has now fallen 10% from the cyclical peak struck in the middle of last year, surpassing the 9.6% fall recorded in the late 1980s and early 1990s in terms of nominal decline.
It’s now the largest fall since reliable records began with price declines still accelerating, rather than slowing, as the market approaches year-end.
The previous price correction occurred just before Australia last fell into recession in the middle of 1991.
After tumbling 0.4% in the prior week, Melbourne’s median home price fell another 0.3% last week, leaving the decline over the past month at 1.2%.
With some discounting is often seen at this time of year as vendors seek to transact before activity slows over summer, given the scale of price falls seen in Sydney and Melbourne over the past month, it’s now debatable as to whether the current declines are orderly.
Last week, RBA Governor Philip Lowe described conditions in the Sydney and Melbourne markets as having “continued to ease”. Not everyone will agree that moves of this scale are simply “easing”.
Apart from Adelaide where median values were steady, prices also fell in Brisbane and Perth last week, losing 0.1% and 0.2% respectively.
Combined, the median home price across Australia’s five mainland state capitals slid 0.4% for the week in average weighted terms. Over the past month, prices in these cities fell by 1.2%.
This largely reflects that 40% of Australian homes are located in Sydney and Melbourne, along with the fact that even with recent declines, around 55% of Australia’s total housing wealth is still located in these cities.
Year-to-date, median values in Sydney, Melbourne and Perth have fallen 7.8%, 6.1% and 4% respectively, masking modest gains of 0.3% and 1.1% in Brisbane and Adelaide over the same period.
Similar results were also seen in price movements over the past year with steep declines in Sydney, Melbourne, and more modest falls in Perth, only being partially offset by small gains in Brisbane and Adelaide.
Rather than being driven by one specific factor, Tim Lawless, Head Of Research at CoreLogic, says there are several reasons behind the recent acceleration in price declines in Sydney and Melbourne.
“The tightening in finance conditions has been more pronounced across the investor segment of the market, where Sydney and Melbourne have recorded much higher concentrations of investment demand,” Lawless said following the release of CoreLogic’s Home Value Index early last week, revealing that capital city home prices slumped by the most since the GFC in November.
“Additionally, housing affordability constraints are more pronounced in these markets and rental yields are substantially lower, indicating an imbalance between rental values and dwelling values.
“The ramp up in housing supply has been more pronounced in these markets against a backdrop of slowing demand, and Sydney and Melbourne have also been more affected by the reduction in foreign buying activity.”
As seen in the table below from CoreLogic, total listings in Sydney and Melbourne have surged over the past year, increasing by over 20% despite a steep fall in new listings over the same period.
Weaker market conditions are clearly seeing some homeowners in Sydney and Melbourne refrain from putting their property up for sale.
However, with demand so weak due to a variety of factors, it’s taking considerably longer for the average home to sell in these cities, helping to explain the sharp lift in properties sitting on the market over the past year.
“Advertised listings have surged higher, providing buyers with ample choice which provides for a strong negotiation position on price” Lawless says.
“The rebalancing towards buyers over sellers in Sydney and Melbourne is clear across CoreLogic’s vendor metrics, with clearance rates tracking in the low 40% range while private treaty sales are showing substantially longer selling times and larger rates of discounting than they have over recent years.”
With so many homes currently sitting on the market, the recent acceleration in price declines in Sydney and Melbourne suggests some vendors are choosing to lower their price expectations in order to secure a sale.
While a substantial drop in demand in Sydney and Melbourne largely explains why total capital city listings have increased by 13.7% over the past year, it’s clear that similar trends are now evident in Australia’s smaller capital city markets, albeit to a lesser degree.
Aside from Darwin where total listings have fallen over the past year, total stock sitting on the market has increased in all other markets over this period, ranging from a lift of 1% in Adelaide to as much as 15% in Canberra.
And unlike Sydney and Melbourne where new listings — defined as those properties that have not been put up for sale within the past six months — have fallen over the past year, all other capitals have seen new listings increase compared to a year earlier.
Should demand not increase by a similar margin in these markets, it suggests that prices may soon start to weaken should current trends be maintained.
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