Australian house prices tumble as RBA rate hikes bite

CoreLogic’s daily dwelling values index tanked in the week ending 23 June, plunging by 0.33% across the five major capitals – the biggest weekly decline since January 2019:

Weekly Australian house prices

Biggest weekly decline in house prices since January 2019.

Every major capital city market experienced price falls, with the exception of Adelaide:

Weekly house price changes

Adelaide the last housing market standing.

Sydney and Melbourne house prices are tanking, down 1.13% and 0.79% respectively so far in June, which has dragged values at the 5-city level down 0.60%

Monthly dwelling values

Big corrections underway for Sydney and Melbourne.

Quarterly values also continue to plummet, with Sydney down 2.4% and Melbourne’s down 1.5%. These falls have offset increases across the other markets, driving values down 0.6% at the 5-city level:

Quarterly house price change

Sydney and Melbourne lead the housing correction.

Sydney dwelling values have fallen 2.7% since peaking in mid-February, whereas Melbourne’s are down 1.7% from its peak.

The great Australian housing correction has clearly begun, led by Sydney and Melbourne. How deep it goes will depend on how aggressively the Reserve Bank hikes interest rates.

If the futures market is correct, and mortgage rates more than double to 7.5% by mid-2023, then both cities are staring at the prospect of their biggest price crashes in 100 years.

Unconventional Economist
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Comments

      • She’s going to have a lot more to worry about than refinances

        1 If she payed $1.65M around, it’ll be worth under $1M next year
        2 she will be in deep negative equity
        3 Her bank maybe gone

        This is going to affect us all.
        Sally don’t worry about your repayment, there may not be anyone to pay it to

        • SoMPLSBoyMEMBER

          Economic collapse is now unavoidable as central bank ‘intervention’ to benefit the small group at the top of the pyramid has now finished.
          “They’ll’ be fine ( don’t you worry) but everyone else will not.
          Prepare for the largest transfer of wealth in the planet’s history. Plummeting purchasing power (already in motion from inflation) and rapidly decreasing equity based asset values will annihilate the heavily indebted.
          Welcome to the ‘consequences’ of insane and corruption fueled economic management; the monetary defibrillator will no longer work,
          Dimon says prepare for an economic hurricane! Cat IV for sure!

          • Jumping jack flash

            Indeed!
            If Ukraine isn’t settled before NH winter, and/or Europe doesn’t start burning coal again, expect massive inflation in energy, which will of course be blindly met with rising interest rates at the end of this year (from probably October?) into next year. And that will pretty much finish everyone off.

            What does European energy prices have to do with Australia? Well, not all that much other than spot price (and we could nationalise or whatever to counter that, too), but the important aspect is interest rates. If UK, US and EU all hike interest rates into an energy crisis then AU will have little choice but to follow them up.

        • bnich, the Flavor Flav of doom. There’s a bit of bad news and then, from the comments comes a “Yeah, boyeeeeee!” followed by some lines of greater doom and torment.

          If someone posted that a flesh eating virus has been unleashed on the world you’d post that it doesn’t matter because the sun is getting so hot with the tweak in atmosphere making it a giant magnifying glass we are all going to be incinerated like ants sufferings the cruelty of young children bored on a weekday afternoon.

          • Footsore
            You can’t even imagine what’s ahead
            It’s way worse than I’m even describing
            It’s going to be catastrophic
            The whole world financial system is going to collapse
            Just look at what’s happening now it’s starting to crumble & leak now
            It’s barely holding together
            Their QE BRRRRRR has created this mess
            Think 1 more pivot
            Bond yields are falling now back to zero but it won’t stop the property crash, it’s the crash that will push the cash rate & bonds negative
            Don’t be surprised to see the Aust 10 year fall here from 4% to negative 2% & cash rate will get up to 2% around July & Aug & then will fall to I’d say negative 2% next year
            They’ll do what they can to hold the banks up but won’t make any difference
            Divya asked me why falling rates won’t save property because it’s the crashing property taking banks down that will take rates down as RBA prints more than 1 trillion
            All that printing again is going to create hyperinflation
            Don’t worry you are going to see it first hand.

            Rates will just keep rising all decade to 1989 levels

            17 plus %

          • To be fair, that’s how short-sellers work. No good being wishy washy, it’s all-in doom and gloom and spread it as far and wide as you can, secret data, nudges and winks etc. Watch the drop, close your position, buy some more marching powder then off you go again. I genuinely admire them, they are the ultimate salespeople.

          • Phil
            The short sellers are about to get crucified
            Going to be a blood bath
            Fed pivot is going to blow their heads off
            The mother of all short squeezes not far away

          • Jumping jack flash

            The “bcnich scenario” could easily have been avoided, and it actually looked like they were preparing to steer that way, but then, the same as 2007, they pulled it and for some reason stopped the debt economy from doing what the debt economy does… especially when interest rates zero out.

            Now we feel the effects and they wont be nice.

      • Bit cryptic, but I think it’s along the lines of CBs taking rates to -2% in the near term, 12 mths …….. then all really turns to sh!t and real risk premium drives it to 17% over 4, 5 yrs. That’s my take anyway

  1. Goldstandard1MEMBER

    There she blows…..
    Of course the biggest decline in 100 years is coming. It just went up 15% in 18 months on the back of the biggest ponzi since tulips. It will possibly come down faster and, guarenteed much further. The crash has begun.

  2. Much has been written and many claims made about the trajectory of the Australian and New Zealand housing markets. a Citi bank last week in regard New Zealand wrote( incorrectly) “But the next six months are crucial, when most of the current fixed-rate mortgages are due for a rate-reset”…The RBNZ provides data “Banks: Assets – Loans fully secured by residential mortgage, by time until next repricing , this is held here at S33 https://www.rbnz.govt.nz/statistics/series/registered-banks/banks-assets-loans-by-sector banks-assets-loans-fully-secured-by-residential-mortgage,basically how mortgages will pass thru the snake, interestingly there has been a noticeable shift to longer rates (at lower rates)
    and historic simple average mortgage rates are found at B20 https://www.rbnz.govt.nz/statistics/series/exchange-and-interest-rates/new-residential-mortgage-standard-interest-rates
    Given Australia has 55 percent of its mortgage book on variable rates and a disproportionate amount on interest only terms, if market pricing is correct ,( and all banks are certainly talking their book) then where ever the New Zealand market heads, the Australian housing market will get there much quicker

    • Just curious – does the figure of 55% include money in offset accounts, or has this been deducted? For example, I have a variable rate loan of $700k on my PPR but it is fully offset.

      • drsmithyMEMBER

        I’ve asked this question in the past as well without an answer.

        My assumption is that it doesn’t include offset accounts, as there’s basically nothing the bank can do to stop you draining that at a moment’s notice.

        • Diogenes the CynicMEMBER

          I would expect at some point the banks will drain customers’ offsets for their own purposes. Yeah “not nice” but it is the bank’s money not yours!

          • I’m curious as to the ‘purposes’ the bank could use a customer’s offset account for? Do you mean simply applying it to the loan balance permanently and closing the offset account?

        • PlanetraderMEMBER

          Yes
          An offset account is a seperate bank account that is invisibly linked to the loan but is completely seperate so I am unsure how that could be counted unles the banks somehow report it as so

        • Ahh, so that explains the difference between the Aus and NZ statistics. Anyway, I guess this is just an issue about timing. Within a couple of years, virtually everybody will be on variable rates again.

    • Vivian DarkbloomMEMBER

      One did not need to be a savant economique in 2021 to see that inflation was not transitory. It was obvious that global government debt was the driving force behind the insistence.

      Risk always turns into issue through a trigger event – call it black swan or whatever – and central banks cannot hide behind the unexpected trigger when virtually no preparations were made for worst case scenarios when the going was good.

      And, no, I don’t think I am smarter than all the guys at the RBA. Which makes me wonder why Martin Place was caught with their pants down?

      • If it was obvious which I agree why was macrobusiness so firm inflation was transitory all year. They had seminars constantly fighting anyone who said inflation was getting worse, they said bond yields were going down to 0 & the Aust 10 year went above 4% what a move from under 1%

      • Inflation is NEVER transitory.

        Speaking as a retail store owner. Once a business puts the prices up, we are not going to drop them.

        The only thing that would cause me to do that, is a recession or if every single one of my competition dropped their prices – and they don’t want to do that either.

    • Ronin8317MEMBER

      While every word uttered by the US Fed is meticulously analyzed, nobody pays much attention to what Phil Lowe says. When the US Fed raises interest rate, RBA will follow.

    • Yes, many people *were* publicly criticizing him at the time for making such statements (Peter Costello, for instance). And Yes, many of my friends (which include quants with PhD’s in mathematics) certainly *are* smarter than his team and could easily have done a much better job.

  3. Anecdote. (From our 5th largest city. Pop circa 150k, and one of the mid-tier RE agents). But it’s the general mood here at the moment where very few properties For Sale are now going to auction. Most are By Negotiation, but more every day now have a sticker price.

    Yesterday in Tauranga, Eves auctions were 0 from 12 with only 1 bid placed during the session.

    • BornwildMEMBER

      Seen this here in Brisbane. I’m looking forward to attending a few auctions again tomorrow – just to take the temperature. RE agents are now having to earn their $$

      • RobotSenseiMEMBER

        Watched a couple online on Wed night. Very slow going where 6 months ago would have been a lit bull in a fireworks factory. Pauses during the auction no doubt as the REA’s had a word in the vendor’s ears that if they pass it in now, they won’t be getting that price again.

  4. I’m looking for a new stimulation
    Quite bored of those inflation lies
    I’m looking for a new rock sensation
    Dead fish don’t swim around in jealous tides

    Tumble in the rough

  5. Without wishing to sound like a pedant, that’s the first time I have ever heard 33bps described as a plunge. Like saying petrol prices plunged from $2.20 to $2.19

    • That’s in a week and includes 5 cities. That would be 17% for the year if it continued and Sydney going down 0.52 a week would be 27% a year. In that context I think plunge is an ok term to use.

      • I agree -27% over 12 months is a plunge. But extrapolating across a further 51 data points to say the original data point is a plunge? Not sure about that methodology, seems to imply a bit of artistic licence (which admittedly is a feature not a bug on this site).

        • C.M.BurnsMEMBER

          it’s also a hat/tip (perhaps unintended) by Leith to an old MB meme from yesteryear. I can’t recall which of the punters started it and this is in no way directed you you Phil, but the meme went:

          (with respect to these daily movements in price up, and then later, down) “annualise this ‘[email protected]

          the original punter was, to be polite, a very vocal property bull.

    • I disagree.

      It’s been in decline for the past decade and made a small jump during COVID compared to every other market (what about half the % increase as over East?) despite being the biggest beneficiary of the latest commodity price cycle. Why would it outperform now.

  6. Even though I think property is long overdue a correction, I’m happy to play devil’s advocate here:

    – property prices falling 30% will only wipe out the previous year’s growth, bad news for people who bought their first home in 2020/21 but they only make up a small % of market

    – household balance sheets are very strong, savings rates are high and offset account deposits are materially higher than when we entered the pandemic, ie there is plenty of buffer to eat into….for now

    • The problem is the productive parts of the economy are stressed, ie construction, so a downturn there feeds into the service economy. And what happens when falling house prices result in buyers needing to put in extra money to meet settlement when banks reduce their valuations? All hell breaks loose. There is only a narrow window of price falls that can be absorbed until procyclical forces start rampaging.

    • From start to finish, in the gfc in u.s. only 11% mortgagees actually defaulted. 11% over a few years caused a lot of damage to everyone else.

      There’s the link, “Defaults rose to a peak of more than 11 percent of all mortgages in 2010.”
      https://www.mckinsey.com/~/media/McKinsey/Industries/Financial Services/Our Insights/A decade after the global financial crisis What has and hasnt changed/MGI-Briefing-A-decade-after-the-global-financial-crisis-What-has-and-hasnt-changed.ashx

      Now compare to all mortgagees over 6x DTI here now.. “The share of new high debt-to-income ratio (DTI≥6) mortgage lending increased significantly to 24 per cent in the December quarter of 2021”
      https://www.rba.gov.au/publications/fsr/2022/apr/box-b-how-risky-is-high-dti-and-high-lvr-lending.html

      24.. thats double that what screwed u.s. around in GFC. The averages hide the true impact of a small number. Don’t underestimate them – even those small amount of irresponsible borrowers will fk you for a decade. As it stands we are twice that.. usually that impact compounds, not just “double the impact!”, at some point it becomes “times squared the impact”

      • Divya – it wasnt the the high levels of DTI that imploded the housing market, it wasnt even the reseting of mortgage to higher rates (most people could afford the loans at the time of reset), the reason the housing market imploded was because of VALUATIONS.

        As soon as the value of the home was worth less than the max LVR, it was in default and the banks foreclosed on thousands of people that could continue to meet their loan repayments. They didnt care if you didnt miss a repayment, they said either kick in $50k to restore the LVR, or we sell the home from under you.

        • yeah so basically you are just looking the LVR stat in the same document.. 6% over 90 LVR.. imagine what %% is over 80% that are risky enough for banks to demand LMI? it aint less than 11%. And 24% are on high DTI as well. These are numbers to be sneezed at even with the parallels as we have already seen before.

          • DTI 6+ are likely to have paid mortgage insurance, which protects the banks not the borrower. Hence, Genworth is initially in real trouble in a scenario of oversized foreclosure numbers. And then it’s the borrower in trouble, because I’m willing to bet that very few people read the clause for LMI contracts that effectively states “once we have paid the bank the difference between asset sale proceeds and the debt owed, we are coming after you for reclamation”.

          • Yes, its the flow on effect. All of a sudden someone with 50% equity / LVR can be in default because the bank can randomly revalue your home significantly lower in a crashing house market.
            However, I think they have learnt from their mistakes. They now know this causes a death spiral.
            Be interesting to see what the banks will do in this type of environment (a) collude together as one to save themselves as a group, or (b) save their own skin and try to minimise losses

          • RobotSenseiMEMBER

            The later.

            Good of individual > good of group. Evolutionary tried and tested for billions of years.

          • Jumping jack flash

            Fortunately they don’t tend to revalue. Im sure there are still some US properties valued at 2006 prices and kept off the market. Like most of Detroit.

          • @JJF, agree they don’t revalue on the fly, so those on variable rates are OK as long as they keep paying. But it will already be feeding into VaR calcs, which will impinge on lending capacity, and anyone on a refinance (even with the same bank) will likely trigger a formal valuation, which is when 80%+ LVRs might get a bit tricky. As always its the problems on the periphery that set the perceptions and pollute the system. I’m not a crashnik, but I do think it is going to get a bit messy for a while.

          • RobotSenseiMEMBER

            @JohnR when things are calm and orderly, sure.

            You ever watched a riot on TV? Famine? Major disaster? When the rubber meets the road, everyone looks out for numero uno.

        • The mellow and meek quiet Australian wouldn’t entertain banks taking liberty with people’s homes, regardless of what the term sheet says. If there is a small % in default, the banks will be ruthless. If there are large numbers in default, Gov and RBA intervene with a bailout.

          Also, under APRA rules banks take liability for valuating correctly. If they have miscalculated the valuation, they are on the hook as much as the borrower.

          • Collateral Obligations – the thread should read up on these before saying collapsing valuations will destroy borrowers. Banks are on the hook for their LVR valuations. If it goes down beyond the terms of the bank valuation, it would easily be argued that’s the banks problem, not the borrowers.

            https://www.apra.gov.au/sites/default/files/Prudential%20Standard%20APS%20220%20Credit%20Risk%20Management.pdf

            Collateral and guarantees
            46. An ADI must have prudent credit risk policies covering the acceptability of
            various forms of collateral, appropriate processes for the valuation of such
            collateral (including the valuation of collateral prior to entering into an exposure
            and the ongoing valuation of collateral, where appropriate), and an appropriate
            process to ensure that collateral is, and continues to be, enforceable and realisable
            (refer to Attachment A to this Prudential Standard).
            47. An ADI must ensure all valuations are appraised independently from the ADI’s
            credit origination, credit assessment and approval process.
            The valuation of collateral must reflect fair values, taking into account prevailing
            market conditions such as time taken for the liquidation or realisation of
            collateral.
            49. An ADI must also ensure that the valuation of collateral such as land takes into
            account, to the extent possible, the likelihood of external events, including but not
            limited to fire, drought and flood, which may impact the valuation of the asset
            taken as collateral.
            50. An ADI must have appropriate mechanisms in place for regularly assessing the
            value of collateral, guarantees and other risk mitigants.
            51. An ADI must establish appropriate limits on LVR to minimise the risk that a
            property serving as collateral will be insufficient to cover any repayment shortfall.
            An ADI must ensure there is appropriate scrutiny of any instances of lending with
            high LVR.
            52. An ADI must appropriately evaluate the level of coverage being provided in
            relation to the credit quality of the guarantor and legal enforceability of the
            guarantee. For exposures to individuals in particular, an ADI must ensure a
            guarantor has a clear understanding of the risks involved.

    • Because they are predicting future based on past behaviours. However we may be at the end game, ie great reset or revolution. Ultimately the elites take over or the people take back the power.

      • Jumping jack flash

        Global conditions are not favourable towards a great reset. If they reset now everything will collapse instantly.

        Reset is an admission of abject failure and there would be dire consequences…. usually… but if *everyone* concedes then that can be avoided. But there are major dissenters at the moment that need to be brought into heel, or collapsed first.

  7. So what !?
    Markets go up and down
    I have never seen a chart that was a straight line

    “ A revolution gets its name by always coming back around in your face.” – Under Siege 1992

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