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Despite spring typically being the busiest selling season of the year, new data from property analytics company Cotality has revealed that home values are sinking and property stock is moving slowly as buyers vanish amid a higher rate environment.
According to Cotality’s latest Home Value Index, released today (2 November), the national index dropped 1.2 per cent in October – higher than the 1.1 per cent in September – dragging the housing downturn into its seventh consecutive month.
Values across Australia are now 6.7 per cent below their March peak, wiping roughly $63,400 off the median Australian dwelling value.
Across the combined capital cities, the speed of the correction has eclipsed all historical precedents from the modern data era. The fall in values marks the fastest pace of decline since Cotality records commence in the 1980s.
Capital city home values have plunged 8.1 per cent in seven months, only marginally behind the largest peak-to-trough decline on record (during the 2017–19 slump), when prices fell by 8.2 per cent. By comparison, prices had only fallen by 1.2 per cent over the same seven-month period at that time.
Brisbane and Perth have now overtaken Sydney with the nation’s steepest monthly house price declines.
In October, Brisbane dwelling values tumbled 2.0 per cent to take rolling quarterly losses to 6.1 per cent, while Perth values dropped 1.7 per cent over the month and 5.7 per cent across the quarter.
Sydney followed closely behind, sliding 1.6 per cent in October and 4.7 per cent across the rolling three months, with its median dwelling price now down 10.1 per cent from its February peak.
Other capital cities are also facing steep downward revisions. Over the month of October, Adelaide values fell 1.2 per cent, Melbourne slipped 0.8 per cent, and Canberra declined 0.7 per cent.
Only Darwin and Hobart managed modest monthly increases of 0.6 per cent and 0.5 per cent, respectively.
When it comes to property type, house values have experienced sharper value reductions than units, with combined capital house values declining 1.6 per cent in October and 5.0 per cent over the quarter. This is compared to a 0.7 per cent monthly and 2.8 per cent quarterly drop in units.
However, many home owners in mid-sized capitals will likely still be sitting on a significant equity buffer, Cotality noted, given the magnitude of the upswing prior to the downturn.
Serviceability barriers holding back buyers
According to Cotality, the primary driver behind the rapid value deflation is a stark collapse in buyer demand.
Modelled estimates have revealed that national home sales over the past three months have tracked 23 per cent lower than a year ago and 18 per cent below the previous five-year average.
Demand has evaporated fastest in Sydney and Brisbane, where quarterly transactions have plunged 30 per cent and 29 per cent year-on-year, respectively.
The buyer pullback comes amid a rapidly rising interest rate environment. The Reserve Bank of Australia (RBA) has raised the official cash rate four times this year – or 100 basis points – with expectations growing that another rate hike will take place tomorrow (3 November).
Another rate hike would take the official cash rate to 4.85 per cent and lift the average variable mortgage rate to around 6.7 per cent for owner-occupiers.
According to Cotality’s analysis, if the RBA does increase the cash rate on Tuesday, borrowing capacity would have shrunk by roughly 11.5 per cent, or $105,000, over this rate-hiking cycle.
That loss in borrowing power has comfortably outpaced the $63,400 drop in national median prices, leaving affordability and loan serviceability worse than when prices were peaking.
Compounding the credit crunch are persistent cost-of-living increases, a softer labour market (with national unemployment reaching 4.7 per cent, its highest level since 2021), and rising inflation.
Investor demand has also taken a hit, following less favourable tax settings introduced in the May federal budget, with new investor loan commitments sliding 8.6 per cent in the June quarter.
Houses taking longer to sell
While fresh stock being brought to market is tracking nearly 18 per cent below historical averages, total advertised listings in capital cities have surged to their highest spring levels since 2019. This is largely due to houses remaining on market for longer.
Cotality’s Home Value Index shows that capital city homes now take a median of 39 days to sell; the longest selling timeline since August 2020.
Auction clearance rates have consistently slipped below 50 per cent across major cities, and vendor discounting has widened to 4.7 per cent, the highest rate of discounting seen since May 2019.
Meanwhile, the supply pipeline of newly completed dwellings is still slow moving, given capacity constraints, long approval times, elevated construction materials pricing, and strained project feasibility.
Speaking of the report findings, Cotality research director Tim Lawless said an array of headwinds continued to weigh on housing demand, even amid a shortage of new homes being built.
“Affordability and serviceability constraints were the earliest factors weighing on housing demand, with these headwinds amplified by four interest rate hikes, persistently low confidence and ongoing cost-of-living pressures. The federal budget has added to the downside pressure since mid-May,” Lawless said.
“The mid-sized capitals, where home values recorded extreme growth conditions over the past six years are now well and truly in a correction. Virtually every suburb across Brisbane, Perth and Adelaide has recorded a drop in values over the past three months."
He continued: “Another rate hike would mean borrowing capacity has dropped by around 11.5 per cent, or more than $105,000 through the rate-hiking cycle to date, more than offsetting the approximately $63,400 decline in the national median dwelling value since its March peak.
“Buyers have a lot more stock to choose from, they have more leverage and there isn’t the same urgency to buy as there was a year ago when home values were rising rapidly. But despite this being a buyer’s market, they are noticeably absent, reflecting low confidence and ongoing serviceability barriers.”
[Related: Property values fall for sixth straight month]
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