Aussie house prices slam into reverse

According to PropTrack Economist Paul Ryan, Australian house prices have experienced their sharpest deceleration in growth since 1989:

“Home price growth has slowed down quickly in 2022. The PropTrack Home Price Index showed that home prices fell in May, the first decline since the start of the pandemic. In the last six months, home price growth has experienced the most rapid slowdown in more than 30 years”.

The annual rate of dwelling price growth across Australia’s capital cities has slowed from a rapid 24% six months ago to 14% in May.

The next chart shows the deceleration across the five major markets:

Annual change in Australian house prices

The slowdown has been sharpest across Sydney – Australia’s most expensive housing market.

As expected, rising interest rate expectations are behind the deceleration. The pace and magnitude of rate hikes should also determine the size of the correction:

“Interest rate expectations have been the key driver of this slowdown. Financial markets expect the RBA cash rate to be close to 2.75% at the end of the year, while other expectations are more moderate, sitting around 1.5 to 1.75%. As a result, buyers have been more cautious in 2022. A two percentage point increase in interest rates would increase average mortgage repayments by almost 25 per cent”…

“How inflation, growth and wages evolve will be key inputs into how much tightening the RBA implements throughout 2022 and how the housing market performs. Resolving this uncertainty about the path of interest rates will be the key element buyers look for over the rest of the year.”

Given Australian house prices soared around 35% over the pandemic on the back of deep cuts to mortgage rates, heavy price falls would necessarily result from the sharpest lift in mortgage repayments in the nation’s history, should the RBA hike rates in line with economists’ forecasts (let along the market’s).

Interest rates are a double-edged sword.

Unconventional Economist

Comments

  1. Time is the variable in price that is rarely understood, prices go up 35% in 2 years, understood, prices come down 20% in 6months possible, so in the last 4 years have prices increased or not?

  2. “prices slam into reverse”

    In the last six months, home price growth has experienced the most rapid slowdown

    So if I hit the gas in 2nd gear and take off like a rocket, and then shift to 4th gear my speed growth will have a most rapid slowdown. But my car is still accelerating. It hasn’t been slammed into reverse just yet.

  3. SnappedUpSavvyMEMBER

    my cba home loan has now gone from 2.25 to 3%, i’ll have to go back to cape grim from the wagyu

  4. Has Rabobank passed on my monthly pay rise yet! AMP offering 2.9% on a 12 month term deposit. What a great time to have savings rather than debt!

    • Robert, to break even, you will need 7.5% td rates. Tax minus official inflation, you are still down 4-5 %.

      • TRADINGtheAPOCALYPSE

        So what? Are there better risk free rates around that are beating inflation I should know about (apart from i-bonds)?

        • I’m afraid that you guys don’t understand what inflation means. I’ve experienced inflation and hyperinflation and subsequent destruction of the society as a result of inflation.
          There are no if or buts if you have inflation.
          5% require 8 % interest rates to kill it.
          7% require 10%, etc

          • You all guys are arrogant and ignorant and one day you will wake up poor. For that, you will blame someone else and try to attack them. They will fight back and you will lose.

    • Robert, do you know if that 2.9% from AMP is an updated figure? Has it risen since the RBA’s recent increase? Or not yet?

  5. Friends just sold their 2 bed 1 garage apartment is Sydney’s east. 250k above what they were hoping.
    That’s not an isolated sale either, Prices have shot up here over the last quarter about 10-20%.
    Don’t know what put a fire under it especially with IR rises.
    My best guess is everyone is rushing to get it and buy because…
    1) The longer they wait the less they will be able to borrow as IR goes up and
    2) Cost and hassle of renting is not great

      • I could also add that there is a lot of people sitting on piles of cash here.
        Not worth sticking in the bank getting negative real returns with inflation out of control
        Stock market turning bearish.
        Property to many people looks like the only safest bet

        • If, in fact, despite the flashing signs of armageddon, this is what happens in the face of sustained large rate increases (more lemmings jump in) property becomes a wealth generator with a busted break pedal, and will crash and burn to a much greater degree than even I expect.

    • Hard to understand without more detail, was it a $200k apartment, or a $2000K/$2M apartment, the devil is in the detail, and you comment lacks detail

  6. Vivian DarkbloomMEMBER

    > Interest rates are a double-edged sword.

    In what, other than the intended, way?