Price declines ease in September, suggesting the worst could be over for Australia's property market
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After months of the property downturn worsening, September brought some fresh hope that the worst phase of the correction could be behind us.
According to CoreLogic's latest report, home prices are now reducing at a slower rate than they were in August, and further deceleration of interest rate hikes could continue to help the market settle.
So how is the market going to fare as 2023 approaches?
National property prices: September 2022
Houses $791,896 Monthly change: -1.5%
Units $604,492 Monthly change: -0.7%
Nationally, property prices fell by -1.4 per cent in September according to CoreLogic, representing a smaller drop than August's -1.6 per cent decline.
| Market | Month | Quarter | Annual | Median Value |
|---|---|---|---|---|
| Sydney | -1.8% | -6.1% | -6.0% | $1,053,131 |
| Melbourne | -1.1% | -3.7% | -3.9% | $774,531 |
| Brisbane | -1.7% | -4.3% | 13.4% | $746,017 |
| Adelaide | -0.2% | 0.1% | 19.2% | $649,983 |
| Perth | -0.4% | -0.4% | 4.1% | $558,879 |
| Hobart | -1.4% | -4.5% | 2.0% | $705,079 |
| Darwin | 0.0% | 1.4% | 6.2% | $509,440 |
| Canberra | -1.6% | -4.4% | 4.0% | $886,990 |
| Combined capitals | -1.4% | -4.3% | -0.7% | $798,101 |
| Combined regional | -1.3% | -3.6% | 10.1% | $589,364 |
| Australia | -1.4% | -4.1% | 1.7% | $730,163 |
Sydney once again experienced the largest correction of -1.8 per cent, with Melbourne remaining somewhat softer at -1.1 per cent for the month.
Brisbane also saw a sharp decline of -1.7 per cent as prices in the Queensland capital adjust from their remarkable peak levels, with Canberra and Hobart also seeing significant shifts of -1.6 per cent and -1.4 per cent respectively.
Adelaide, on the other hand, held firm and resisted any significant drops with a small -0.2 per cent decrease in September.
Perth remained fairly stable with reductions of -0.4 per cent, while Darwin remained dead flat.
On the whole, regional markets mirrored their capital city counterparts with a combined -1.3 per cent fall for the month.
CoreLogic's research director Tim Lawless said that the overall slowing decline means "It's possible we have seen the initial shock of a rapid rise in interest rates pass through the market and most borrowers and prospective home buyers have now ‘priced in’ further rate hikes."
He did, however, caution that any new surprises in the form of more fast-paced rate hikes could see the downturn accelerate again.
Below-average spring listings and rising auction clearance rates help to slow market correction
The spring selling season typically sees a surge in new listings, but this year has seen below-average activity from sellers.
In the four weeks to September 25th, new listings across the capitals were -12 per cent down on the same period last year, while total stock on the market is -15 per cent below the five-year average.
Noting the slow start to this year's spring selling season, Mr Lawless said "It seems prospective vendors are prepared to wait out the housing downturn, rather than try to sell under more challenging market conditions."
"We haven’t seen any evidence of distressed sales or panicked selling through the downturn to date; in fact, it has been the opposite."
Auction clearance rates have been gradually rising since a tough start to winter, suggesting a more balanced market could be emerging.
The unseasonal shortage of stock on the market could also be an important factor in minimising further price declines and may explain the easing seen throughout September.
Regional markets are now in line with capital city corrections
Australia's regional locations extended their gains beyond the capitals through the first half of 2022 but all markets have now fallen into lockstep.
| Market | Month | Quarter | Annual | Median Value |
|---|---|---|---|---|
| Regional NSW | -1.7% | -4.5% | 9.0% | $715,339 |
| Regional VIC | -1.1% | -3.1% | 7.2% | $579,344 |
| Regional QLD | -1.3% | -3.5% | 12.1% | $562,394 |
| Regional SA | 0.5% | 1.8% | 22.2% | $344,517 |
| Regional WA | 0.3% | -0.1% | 6.9% | $403,257 |
| Regional TAS | -1.7% | -4.0% | 10.1% | $522,279 |
| Combined capitals | -1.4% | -4.3% | -0.7% | $798,101 |
| Combined regional | -1.3% | -3.6% | 10.1% | $589,364 |
Each state's regional market matched its capital to within a few tenths of a per cent in September, which the exception of regional South Australia which outperformed Adelaide by +0.7 per cent.
Mr Lawless explained that some areas are still holding on to peak-level prices, particularly "regional markets associated with agriculture, mining and tourism."
Other locations, especially those that have been hit hard by flooding like the Richmond-Tweed region, have seen more significant corrections.
"These areas saw housing values rise between +38 and +62 per cent through the growth cycle, so most home owners are still well ahead in terms of equity in their home," he added.
Considering the historic growth recently experienced across the majority of Australia's regional markets, there would need to be a far deeper correction before things came close to pre-pandemic levels.
Units continue to hold strong against houses
After last year's house-led property boom, it's come as little surprise that houses have been hit hardest by the current downturn.
Stretched affordability pressures and buyers facing reduced borrowing power have helped bolster the appeal of units in the current market — though units also don't have such a high peak to be falling from.
Over Q3 of this year, Australia's median house price dropped -4.6 per cent compared to a -2.6 per cent dip for units.
Dr Shane Oliver, AMP Capital's chief economist, explained to Domain that "people will scrimp and save and do what they must to get into a house, that’s why the rate of increase over long periods of time has been stronger for houses than units.
"Very low interest rates have enabled people to borrow more to get into their preferred property, which is a house. At the same time, there hasn’t been enough supply to meet population growth."
While houses have the long-term advantage, that shortage of supply is expected to worsen as immigration ramps up in the near future, with new arrivals to Australia more likely to seek out units whether they rent or buy.
What's next for the Australian property market?
The big news this week was the RBA's smaller rate hike of 0.25 per cent for October which could be a signal that the worst of the rising interest rate pressures are over.
Bloomberg reported that private sector economists are on average forecasting the cash rate to peak at 3.35 per cent in the first quarter of 2023. Considering the cash rate now sits at 2.6 per cent, up from 0.1 per cent in April, the majority of the rises may now be in the past as inflation looks to be moving through its peak.
CoreLogic's report explains that, once the cash rate does stabilise, property prices may level off. In the meantime, it's likely there will be further declines, though they shouldn't be as steep.
"We will be watching for any signs of market distress as the dual impact of higher interest rates and high inflation impact household budgets," Mr Lawless said.
"To date, the flow of new ‘for sale’ listings has actually trended lower as vendors retreat to the sidelines, a good indicator that homeowners are weathering the downturn.
With listings remaining below average and auction clearance rates steadily rising, a more balanced market should be emerging. Sellers will still need to be realistic about asking prices and willing to negotiate, though, as the FOMO-led conditions of 2021 are certainly over.
