Despite the RBA continuing to raise interest rates, the decline in property prices across the country is starting to slow.
According to CoreLogic, property prices fell 1% nationwide in January, again led by larger falls in Hobart (-1.7%), Brisbane (-1.4%), Sydney (-1.2%) and Melbourne (-1.1%).
Smaller capital cities continued to perform well, with Darwin's market remaining relatively stable (-0.1%) over the month, while the booming Adelaide market fell 0.8%.
Source: CoreLogic
Tim Lawless, research director at CoreLogic, said there were signs that some momentum was slowing from the housing market downturn, although the downturn remains geographically widespread.
“The quarterly home price trends clearly show that the pace of declines is slowing in most regions, however, at -1.0% for the month and -3.2% for the quarter, home prices nationwide are still falling fairly rapidly compared to previous declines,” Lawless said.
Lawless said the most notable moderation in home price declines has been seen in the luxury sector of the housing market, with the country's most expensive properties having driven both the recent rise and the current decline.
“The improving situation across the luxury housing market is not seen in all cities but is most evident in Sydney's detached home market,” he said.
“This improvement could reflect more buyers taking advantage of larger price declines across the premium sector, where home prices have fallen 17.4% since their peak in January 2022.”
Property prices in rural areas also continued to perform better than urban areas, falling 0.8% in January.
Across Australia's non-capital territories, house prices continued to trend upwards, rising 41.6%, compared with a 25.5% increase across capital territories.
The regional composite index has fallen 7.4% since peaking in June, while stock prices in the capital region are down 9.6% from their April peak.
“Despite moderating domestic migration rates and a partial erosion of pre-pandemic homebuying advantages, regional home prices have held up better than metropolitan markets,” Lawless said.
“This will be an interesting trend to look at over the longer term, but for now we appear to be seeing a structural change in the underlying demand profile in the local housing market.”
“We are unlikely to see a large-scale talent exodus from regional markets as more Australians want to be based outside capital cities and remote working remains a viable option for some sectors of the workforce.”
Supply Shortage
Despite soaring home prices and upward pressure on interest rates, listings have yet to increase significantly, according to CoreLogic.
The number of new listings in the capital region was down 22.2% compared to the same period last year and 24.5% below the five-year average. New listings through January were below average in all capital regions, reflecting potential sellers' reluctance to test the market.
“With so few new listings, it appears most homeowners don't need to sell and are instead prepared to wait out this downturn,” Lawless said.
“The trend of lower than normal new listings has continued through the spring and early summer and is expected to continue into 2023.”
Lawless said property listings and purchasing activity are unlikely to return to average levels until consumer sentiment begins to improve.
“There is a strong relationship between consumer attitudes and home sales.
“With the economic downturn remaining at low levels, it's becoming more difficult for consumers to make big decisions like buying or selling a home.”
Source: CoreLogic
Rents remain high
Monthly rent increases rose slightly in January, with rents nationwide rising 0.7% after December's 0.6% increase, but still down from record levels.
“After recording significant increases during the worst of the pandemic, rent increases have broadly moderated in most regions, reflecting a shift in demand towards more affordable, higher density rental units,” Lawless said.
“In contrast, unit rents have skyrocketed over the past year.”
Housing Market Outlook
Lawless said house prices are likely to stabilise once interest rates have passed their peak.
He said it could take several months for the decline to subside and that the market will need some stimulus before a new growth cycle can begin.
“The most obvious stimulus would come from lower interest rates, but a cut in cash rates is unlikely until later this year at the earliest,” he said.
“Other factors that may support housing activity could include rising consumer confidence, easing of credit policies such as APRA's reduction in repayment capacity buffers, and fiscal incentives aimed at stimulating housing demand.”
Lawless said there was also a risk to the property market as many borrowers switched from low fixed-rate loans to higher adjustable-rate loans.