Economic crisis in Australia: house prices in sign will fall by 20%

House prices in Australian capitals have been caught up in the country’s widespread economic crisis, with values ​​continuing to fall.

CoreLogic’s Home Value Index, a tool that measures movements in housing markets in capital cities, recorded its first national decline since September 2020 in May.

Over the past quarter, home values ​​in Melbourne and Sydney have fallen by 1.8 and 2.8 per cent respectively.

While increases were recorded in Adelaide (5.2%), Brisbane (2.7%) and Perth (2.1%), these increases were not enough to offset declines in Melbourne and Sydney.

This means that there was a 0.9% decline in home values ​​in these five cities in the last quarter.

Camera iconHouses in capitals lose value. NCA NewsWire/David Crosling Credit: News Corp Australia

CoreLogic cited a combination of higher interest rates, rising inventory levels and weaker sentiment for these “easing conditions.”

“There has been a lot of speculation around the impact of rising interest rates on the housing market and the increase in the interest rate last month is just one of many factors that is slowing or reverse house price growth,” said CoreLogic research director Tim Lawless.

“It’s important to remember that housing market conditions have weakened over the past year, at least at the macro level.”

Mr Lawless said after the quarterly growth rate of national home values ​​peaked in May last year, homes became less affordable.

“Since then, housing has become increasingly unaffordable, households have become increasingly sensitive to higher interest rates as debt levels rise, savings decline and conditions loans were getting tougher,” he said.

“Now we are also seeing high inflation and a higher cost of debt which is impacting declining housing demand.”

Camera iconHome values ​​in Sydney have fallen 2.8% in the last quarter. NCA NewsWire/David Swift Credit: News Corp Australia

AMP chief economist Shane Oliver fears that home values ​​in the capital will continue to fall.

“The housing crisis is accelerating. Low affordability, rising rates and lack of confidence point to further major falls ahead,” he said.

“The top-to-bottom drop is now more likely to be 15-20%.”

CoreLogic’s monthly housing chart for June also noted that these factors “could continue to put downward pressure on the home value index.”

InvestorKit’s head of research, Arjun Paliwal, said he expects a “three-speed market” to continue for the rest of the year.

“The first gear, the direction of Sydney and Melbourne, will continue to decline. People there are more sensitive to changes in supply and demand that occur with sentiment and interest rates,” he said.

“When it comes to second gear, our small capitals and our massively undersupplied regional cities…those regions will continue to grow.”

The final speed Mr Paliwal identified involved units and townhouses, which he expected would still perform poorly despite costing less than buying a house.

“A lot of people have this theory that because the price differential between units and houses is so big, everyone will jump ship. I don’t think that will be the case, I still expect many unit markets to perform quite badly for 2022,” he said.

“The taste that stuck in many people’s mouths after Covid and the change in lifestyle preferences for space, those behaviors don’t change instantly because price differentials are better.”

investor kit
Camera iconInvestorKit’s head of research, Arjun Paliwal, said there is a “three-speed” real estate market. Provided Credit: Provided

On what vendors should do in Melbourne and Sydney, Mr Paliwal said it was not in their favor to “drag out” their processes.

“Adjusting to sales agent guidance and the right pricing from day one can help you get ahead and gain momentum,” he said.

“Expecting things to improve over time in these two cities is not the best advice for current sellers.”

But he said there was a “huge opportunity” for investors if homeowners were spooked by the overall decline in the national home value index despite prices rising in several capitals.

“When you see our two big cities creating shifts in the national data, it can lead a lot of people in those smaller cities to think that maybe things aren’t quite as rosy, even though their fundamentals are jam-packed with strong elements of growth” Mr. Paliwal said.

“As a result, you could see a buying window for savvy investors to buy properties in strong markets across Australia just because of a bit of uncertainty from the general public.”

Beyond Melbourne and Sydney, Canberra’s home values ​​also fell 0.1% in May, its first monthly decline since July 2019.

The nation’s capital is Australia’s second most expensive property market behind Sydney.

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