Sydney and Melbourne house prices plunge

CoreLogic’s daily dwelling values index, which measures price changes across the five main capital city markets, declined by 0.11% in the week ended 12 May:

CoreLogic weekly dwelling values index

The decline was driven by Sydney (-0.26%) and Melbourne (-0.22%), which both recorded heavy price falls. By contrast, the other major capitals each recorded price rises, with Adelaide leading:

Weekly house price movements

Over the quarter, Sydney (-0.8%) and Melbourne (-0.3%) both recorded falling dwelling values, but were more than offset by solid-to-strong rises across the other major capitals, thereby driving values up 0.8% across the combined 5-city level:

Quarterly house price movements

Similarly, since the beginning of the year Sydney and Melbourne dwelling values have fallen by 0.1%, more than offset by strong growth across Brisbane (+9.0%) and Adelaide (+8.6%), and solid growth in Perth (+3.3%):

2022 Australian house price movements

With interest rates now rising, and Sydney and Melbourne having the nation’s most expensive homes and indebted households, both cities should experience accelerating price falls in the months ahead.

How fast and far prices fall will depend on how aggressively the Reserve Bank hikes interest rates.

Unconventional Economist

Comments

  1. Hugh PavletichMEMBER

    What is being learnt from the more affordable United States housing markets ? …

    Is housing our greatest policy fail? … Tom Burton … Government Editor … Australian Financial Review

    https://www.afr.com/politics/federal/is-housing-our-greatest-policy-fail-20220509-p5ajpj

    It is hard to think of a larger public policy fail over the past few decades than housing. A fail virtually every young Australian seeking housing is now paying for. Big time.

    Sydney is now the second and Melbourne the fifth most unaffordable cities in the world when prices are compared with incomes, according to a regular study by Demographia. Their latest 2022 international study shows it now takes 15.3 years of median household income to pay for the median-priced Sydney home. For Melbourne the ratio of price to income is 12.1.

    All five of Australia’s major metropolitan housing markets have been considered by Demographia to be “severely unaffordable” (price to income greater than 5.1) since the early 2000s. The housing price-to-income ratio has more than doubled since late 1980s, says the Centre of Independent Studies chief economist Peter Tulip. … read more via hyperlink above …

    Demographia – Digital Finance Analytics (DFA) Blog

    https://digitalfinanceanalytics.com/blog/tag/demographia/

    Demographia International Housing Affordability: All Editions

    http://www.demographia.com/db-dhi-index.htm

    Demographia United States Housing Affordability Survey 2021

    https://urbanreforminstitute.org/wp-content/uploads/2021/11/Demographia-United-States-Housing-Affordability-2021-Edition.pdf

    • Genuine question: If housing were not so insanely over valued than what assets would be the foundations of Australian savings?
      Would our “savings / wealth” be a function of our productive capacity (like a company’s marketcap being somewhere between 0.5 and 1.5 times revenue)
      would our savings be a function of Aussie dollars sitting idly in our big4 bank vaults?
      would our savings manifest themselves as boats and fast cars littering our streets and waterways, or maybe we’d all own helicopters…
      Serious question : what would be the nature of Australia’s wealth (savings) if it were not dominated by housing?
      Would we transition into a society with a huge Current Account surplus (like say Norway) and basically own large chunks of the world.
      Would we invest our Mineral wealth in high tech / chemical ventures (like say what’s been happening in Saudi Arabia for the last 2 decades) ?

      It’s a serious question because crushing one type of wealth (housing) without developing another only really harms the economy.

        • Not really, only 25% is debt and people keep thinking everyone is hocked up to their eyeballs on stuff. $2.5T debt on $10T housing “value”. Around 33% of families have a mortgage, 1/3 own outright (boomers) and another 3rd rent from boomers.

          • No, it’s debt.

            Property is set at the margins, and the marginal transactions aren’t ‘buying at the price think it’s worth’, they’re buying at whatever the bank will lend them.

            There may be 10 houses in a street, with 9 unencumbered and one about to be bought via a mortgager…. but if the debt equation changes, i.e. prudential factors, or other, reduce what the bank will lend… then all 10 houses go down in price.

          • RP – Agree prices are set at the margins. Easy debt drove prices up and tight debt or defaults drive prices down. But to say everyone will be affected the same way is not true.

            I’ve said consistently that a large and sustained drop in house prices is an issue for everyone because it destroys the wealth effect and consumer spending habits of all but the most well healed as equity is driven out of their largest asset, the home. As most SME’s have their business loans tied to a mortgage backed asset the snowball grows and mass layoffs become part of the landscape.

            Those in debt get cleaned up 1st, those who own their own home outright cut back on discretionary spending. The difference is stark, one is bankrupt and homeless, the other is not having Wagyu and Shiraz.

          • @Boom thanks.
            I know what price I want to charge, all that I’m perplexed by is the deliberately obtuse methods for costing projects.
            Personally I want to be able to know when a project is in difficulty and where EXACTLY the money is going, and I mean to the penny which sink hole the money is disappearing into. That’s the only way that I know of to manage a project.
            Australian military standards seem to attempt to muddy the waters from day one and make it impossible for anyone to really understand where money went to.
            I just can’t believe that this is the way we do it

      • Half of the funding the banks lend out is from overseas, so no we don’t have surplus savings. The surplus isn’t so much surplus but QE dollars from larger foreign nations trying to find yield.

        Such printing/surplus leads to inflation, we have had immense inflation in housing/asset prices which the CBs conveniently ignored because their inflation numbers exclude it. Inflating asset values made people feel more wealthy, kept people spending but such tricks can only last for so long. Finally the inflation the CBs have been pushing into the system is leaking into everyday goods/services, all that excess in the system needs to be wound back.

        • Yep correct on all counts but it doesn’t matter.
          If housing prices fall our Aussie economy will quickly enter recession and both our Fiscal and Monetary policies will quickly adapt to ensure that the economy doesn’t completely face-plant
          All that stands in the way of massive Aussie QE is our ability to convince the global bond market to buy Australian bonds (as in fund QE) or our willingness to let the AUD fall through the floor.
          Unfortunately we’ve engineered ourselves into a corner where taking the “right “actions has consequences that we can’t accept, can’t collectively tolerate (so we won’t accept them) we won’t tolerate them. In the end a solution will be forced upon us, but we’re not at that point yet.
          It’s similar to the way in which Argentina gradually strangled itself, their were hundreds of opportunities to fix the direction of the economy / society but at each turn they chose to not fix problems so with each iteration the noose tightened.

        • Half of the funding the banks lend out is from overseas, so no we don’t have surplus savings

          Well, we do…. we have $1.5 trillion in superannuation savings…..

          We have savings, just not invested in our own mortgages…. might have something to do with government intervention setting the wrong price.

  2. Hugh PavletichMEMBER

    The days of centralization are well and truly over … check out this Manhattan office working example …

    … Large de – centralised and affordable suburban, exurban and smaller urban areas living and working arrangements are the future …

    … The days of bubble pricing for real estate are over … …

    Only 8% Of Manhattan Office Employees Are Back In The Workplace Full-Time: Study … Zerohedge

    https://www.zerohedge.com/personal-finance/only-8-manhattan-office-employees-are-back-workplace-full-time-study

    Authored by Katabella Roberts via The Epoch Times,

    Just 8 percent of Manhattan office workers have returned to the office five days a week for in-person work, according to data published on May 9 by the nonprofit organization Partnership for New York City. … read more via hyperlink above …

  3. Decline, decrease – words more apt for reductions of around 11 basis points.

    Plunge is hyperbolic – you don’t need to compete with the Sydney morning herald.

  4. Goldstandard1MEMBER

    The crash on like donkey kong now. Shold get at least 6 months of steep falls before staglation/deflation bites then jobs go and more falls. Should never have gotten this bad. Terribile monetary and fical policy. Crash bang…..

  5. Not sure you’re reading this properly Leithal.

    My take is we’ve had an extraordinarily sudden supply response in NSW/VIC over the last month, builders have been working round the clock and geological mother nature suddenly making more land out of thin air. It’s all supply demand here, with the response faster than Santa Claus on Xmas Eve. They’re now focussing their efforts the other states as we speak.

  6. Anecdata from Adelaide that fits with the above graphs.. A decent sized unit that was set for auction had it’s open day last weekend. The RE agency put an expected price on the advert. Vendor accepted an offer at the open house that was $100k over and has other offers above quoted price to possibly fall back on.

  7. SchillersMEMBER

    After rises of 20 to 30% and more, a “fall” in house prices of 0.1 to 0.2 of one percent is hardly a “plunge”.
    More like a leveling out or flat line.

    • Goldstandard1MEMBER

      I think you are missing the point. It’s take HUGE forces to change direction from Australian’s default opinion that property always goes up. Therefore what you are seeing is the beginning of very large falls. Those falls WILL NOT change direction until we see negative interest rates, but many things will be broken by then, might be a war on, another virus mutation etc. A good time to have cash.

      • The government are going to blame any foreign interruption of our way of life(ever increasing house prices) on said interruption ie war virus etc rather than 20 plus years of feeding the housing bubble for their own greed.
        If property tanks = blame foreign interruption
        If property rises = their good economic managers
        Sickening really

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