All indicators point to major Australian house price falls

Even before today’s expected 0.5% rise in the official cash rate, Australia’s various housing indicators are flashing red for property prices.

The latest national auction clearance rate, which has traditionally been a sound leading indicator for price growth, has collapsed – recording its worst result since April 2020 when the nation was in hard lockdown:

Capital city auction clearance rates

Auction clearances point to falling dwelling prices.

Annual mortgage finance growth also turned negative in May, which given historical correlations points to falling dwelling prices:

Mortgage demand versus house price growth

Mortgage demand also pointing to falling prices.

Viewed together, both indicators suggest that home buyer demand has evaporated. This view is supported by the trend reduction in dwelling sales over 2022 toward the five year average:

Dwelling sale volumes

Sales volumes are falling.

Finally, the Reserve Bank of Australia has commenced this monetary tightening cycle with consumer confidence at recessionary levels, well below the lows of the Global Financial Crisis:

Australian consumer confidence

Australian consumer confidence is already at recessionary levels.

The consumer confidence index has traditionally been another leading indicator for house price growth, as illustrated in the next chart. As such, the collapse in confidence points to falling house prices:

Australian house prices versus consumer confidence

Poor consumer confidence usually means lower house prices.

The median economists’ forecast is for the official cash rate to peak at 2.85%. This would correspond to a discount variable mortgage rate of 6.2%, which would represent a huge increase on the 3.45% mortgage rate that existed before the RBA commenced its rate tightening cycle.

The futures market is even more hawkish, tipping the Reserve Bank to lift the cash rate to 3.6% by mid next year. This would lift the discount variable mortgage rate to 6.9% – exactly double its pre-tightening level.

If either scenario came to fruition, it would cause a further sharp contraction in home buyer demand and consumer confidence, thereby driving serious house price falls.

Unconventional Economist
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Comments

  1. The fed broke it. Now, they own it.

    I bought a house in Perth (6019) in July 2020. Price has only gone up 8% since then to match the price the house sold for new in 2009. Read a month ago that Perth prices have only just gotten back to their 2014 peak. Same country, same banks, same interest rates, same migration policy but a vastly different housing market. The only difference I can think off is that the Commonwealth never bailed out the mining industry during downturns but each time the East Coast dipped slightly out comes a property stimulus. I shouldn’t have to live with inflation so those in Sydney can live in $1M homes whereas the same house in Perth is just $500K. If WA has learnt to be prudent with money then so should the rest of Australia. If raising interest rates is the only way to change behaviour, then so be it. Perth has Australia’s most affordable housing which is why I bought here but now find that I will be subsiding the East Coast through inflation. You can keep your high house prices but don’t export your inflation West.

    • Leroy Huggins

      Not the same migration policy. Even adjusted for size, the east coast capitals settle many more migrants per capita than out West. Migration drove the boom in Melbourne & Sydney, which then caused flight from locals to Hobart, Brisbane & Adelaide, and other regional centres fuelling their own booms. Perth represents what Melb & Sydney would look like if there WAS a sensible national migration policy.

      And nothing can change behaviour (over investment into housing stock) while the migration policy remains. Because it forces locals to be desperate to enter the market (to raise families, to escape ever raising rental prices), and piles on many more people willing to buy on top of that. Locals will still be buying at their max capability with high rates, meaning house prices will be lower, yes, but the huge chunk out of the pay cheque will be the same or higher. It is societal rape by migration & banking policy. Aided and abetted by the 3 largest political parties for decades.

    • Agree with everything here. Only left WA because it’s getting too hot and too dry. At the time, Tasmania was a great alternative… now prices here are bananas. From the most affordable to the least.

    • Something is wrong with the Perth market. I’m not smart enough to understand what but I know the regional WA market has had major price gains (we sold a knock down house for $610k when pre pandemic we would have been lucky to get $380k. Also plenty of neighbours of our home have received 40-50% more).
      It’s why I keep advocating for WA though. Place is truly awesome with genuine good times ahead.

    • Arthur Schopenhauer

      Given houses cost what most people can borrow, the simple explanation is banks made less credit available in Perth.

      Why? Perhaps the simple human factor that the HQ of Australian Banks are in Sydney and Melbourne, so they get first dibs.

      Always back a horse called “Self Interest”.

      Edit: Migration Policies and Bank Policies. It’s a chicken and egg problem.

    • WA is a mining success story, unfortunately both the state and the nation have wasted what it could have been. Its empowered China and made a bunch of oligarchs which profit shift to tax havens.

    • OMG Perth is subject to the same housing BS as eastern, southern & northern states..they were just a few years late to the party.
      Kicked off late 2003 early 2004..
      could buy a. 2 bedroom cottage $390 K Mosman Park,
      $420 – $480K 3 bedroom brick cottage with garden Mosman Park
      North Freo 3-4 bedroom old style long block on Stirling Hey 390-410K
      Cottesloe 3 bedroom house with 2 living areas 197K
      Cottesloe 4-5 bedroom circa 1980’s family home with rumpus & huge block $289K 1998
      Give or take.

  2. Camden HavenMEMBER

    I’ve read a range of interesting views relating to how gubberment will make sure prices won’t fall. Including RBA controls interest rates.

    Gubberment is the problem not the solution

  3. Consumer confidence plunging to historic lows, among others, in the United Kingdom, Austria Sweden, Denmark, Finland, Germany, The Netherlands, Luxemborg approaching historic lows throughout Europe waiting for winter, Lows n New Zealand with Australia approaching ( and certainly after today) and quickly turning in the US Canada Switzerland and Japan . Unknown in the likes of Sri Lanka.

      • Carlos
        Re AUD
        you have to be very careful selling technical breaks, the really smart hedge funds & traders put big buying orders underneath knowing the many try & sell the break. It rarely follows through & turns back the other way
        Let’s see from here but we got to 6765 & was a quick snap back to 6890. There is big buying orders under 68c

    • Yes the west 1 billion population in the countries you named as small part of the planet, where economic confidence will drop catastrophically in the collapse in 10 years. Different in the east which is sorting itself out fast.

    • Do it quick, I’m hearing there’s a developing global battery shortage…

    • desmodromicMEMBER

      Swampy, consider one of the these instead of a battery https://www.solahart.com.au/products/battery-storage/solahart-powerstore/
      In Adelaide the economics of batteries is still marginal. A Powerstore can be installed for about a third the cost of a battery and manages PV production for on-site domestic use while maximising electricity to the grid. Once the utility companies reduced the feed-in tariff to a few cents I went looking for means to retain as much power on site for domestic use. Water heating is a major user of power and the Powerstore made more sense than a battery or power diverter systems to old electric heaters.

      • Yep also onto that thanks desmo.

        Will need a smart inverter, no? Which we’d need for battery anyway.

        Batteries will become less marginal once power doubles!

        • Diogenes the CynicMEMBER

          As long as the PV is on the same phase as the water heater (the old element heaters with a big nicely insulated tank would work best) you could do it with a timer. Smart inverter is also good.

      • Grand Funk RailroadMEMBER

        I have been looking at one of those too

        The feed in rates from solar are so low it makes sense to use the power on site

      • Roughly what do they cost DD? Tesla PW2 will be roughly $15k installed so even with bills increasing it’s a hard justification. We find gas hot water not too bad but agree the solar feed in rates are useless so it would be good to use that energy.

        • Often it can be a trade off for space if that same roof area can be used for panels. We have 10kw and that pretty much takes up the East, North & West roof space.

          • Also have to factor in servicing costs on roof-mounted hot water. Sacrificial anodes that need changing every couple years, pipe connectors that go brittle in the sun and blow out periodically etc.

    • happy valleyMEMBER

      Day by day, it’s looking more and more like oneterm Albo. Just as well he is getting these junkets in.

      • lol.

        There is literally nothing in the Coalition ranks that will keep him up at night.

        • Miserable situation, isn’t it? “you get the government you deserve” is way too bloody harsh IMO.

          • Arthur Schopenhauer

            Our neighborhood is starting the process of finding a decent Teal candidate to go up against a ‘safe’ Labor candidate.

            The response so far has been overwhelmingly positive.

          • Not really JR when you consider voters on average will not take the hard choice of ditching the two majors until one of them comes to their senses, which imo, will be a long time coming as the LNP is ideologically wedded to their donors and Labor is too scared to upset business & the major media outlets to be anything but LNP Lite. Labor is C-R, it may have a L wing, but it doesn’t come out in a policy manner.

            Until voters are prepared to disrupt the stats quo we will get nowhere and we’ll get what we deserve.

      • Ronin8317MEMBER

        At least he’ll last the whole term. Kevin Rudd didn’t even last one term.

      • I know right. Imagine getting $elected by a pi$$ed off electorate drowning in overpriced housing, inflation off the charts and northern river folk literally being drowned out if their properties by aptly named Rain B0MB$…yet you swan off to Ukraine green room movie set where the gracious cr0ss dressing, dancer ex Actwh0re president greets you in the same green T shirt he has worn for Bono & Sean Penn. Then from the pubic purse you magnanimously ‘donate’ a few million. Seriously WTF. Folk are niece to the orchestrate sh1t show playing out before their eyes that are wide shut:(( hilarious if you want a laugh google research ZelmkskY playing piano with his pen1$ on live TV with a few of his thespian mates: Ukraine got talent or a late night variety talk show with special (in truest sense of the word) acts:(((

        • Despite spell check comment auto correct naive to niece & orchestrated to orchestrate.
          Still a crazy rant though:)) hee her

    • working class hamMEMBER

      Have a look at Red Energy, we have used them in Vic and Qld.
      Aust company, with Aussie call centre, cheapest rates and a cheaper connection rate.

    • Plus Russia is taking full control of the Sakalhin gas and oil field and excluding japanese investors Mitsubishi and Mitsubishi, plus Shell which together own 50%. Russian law has changed and this asset will be taken over which means Japan with heavy sanctions on Russia who is withdrawing from the west, will presumably want MOAR from Aus. Not happy if that is joyously taken away from Aus domestic consumption at cheap price to Japan supported by unaffordable to us, those renting and paying bank mortgages.

  4. reusachtigeMEMBER

    LOLOLOL!!! Ain’t never gonna happen. Just negative sideways movement before the next boom.

    • ErmingtonPlumbingMEMBER

      Exactly.
      Once the Aussie dollar goes down to 40c and inflation has Toyota Landcruisers costing over half a million bucks average Sydney house prices will go over 2 million!
      I mean a Sydney house has got to be worth more than a couple of Landcruisers

  5. Jumping jack flash

    “Viewed together, both indicators suggest that home buyer demand has evaporated.”

    Houses are on the coalface. Houses are the “debt sluice” into the heart of the debt economy.

    First housing debt demand evaporates, then “everything demand” evaporates.

    Then the jobs and wages that were supported by that demand.
    Businesses aren’t going to keep people working for them if there’s no demand for what they do.

    The economy is still running on the stimulus fumes from their recent hastily abandoned hyperinflation attempt. Depending on how you look at it, fortunately or unfortunately there is a lot of stimulus to work through before everything starts running backwards.

  6. Arthur Schopenhauer

    Including ‘Withdrawns’, the Melbourne clearance rate for the w/e was 54.5% according to The Age. 🤯😱

    • I’ve read that a number of aggregators have stopped publishing the weekly clearance rate.

      Plenty of “keeping you informed” on the way up, but nobody wants to write about the bad news.

      • It’s only “bad” news for the FIRE sharks. For (almost) everybody else it’s great news.

          • Cheers mate. I spent $1.1M for a very nice but still hugely overpriced house in the Canberra suburbs last year. Even so, I’m still cheering on falls in house prices for the good of the nation, and my children.

          • We both bought near peak (I bought late 2019), but I want prices to drop back to sensible. Just wish I could have held out longer. But at same time happy with my house so don’t care too much.

      • IE. Real estate.com.au has ditched month suburb price charts .
        Still a race between re agents and used car salesman to the bottom, gas executives closing fast

  7. Fishing72MEMBER

    This town is looking at a virtual doubling of housing stock in the next couple of years. During 2021 the houses / blocks were pre selling off the plan completely. Everything available was snapped up. Another new estate had an auction last week- four hundred metres to the ocean, next door to the estates which sold out immediately- 3 blocks out of the 12 sold.

    Times are a changing’.

  8. Yo, Australia is massively unprepared for Foot & Mouth Disease (FMD, good name).
    It is worst in the Sheep industry.
    There is FMD in Bali. There is plenty of movement between Bali and Oz.
    https://twitter.com/MalleeRay/status/1543884607720144896
    If it gets in, the sheep industry has no biosecurity plan in place, fast lockdowns are not possible (beef industry is better), it will not be detected quickly. It cannot be tracked and traced. There aren’t enough vaccines and there aren’t enough vets to administer them.
    There will be mass-scale extermination, probably by the ADF.
    We will likely be banned from export to a number of key trading partners for years, even if we do manage to eradicate it.
    Bullish!!!

    • Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) modelling projects a widespread FMD outbreak in Australia would have an estimated direct economic impact of around $80 billion.

    • haroldusMEMBER

      There will be mass-scale extermination, probably by the ADF.

      Steady on old chap. I know they vote national but that seems a bit extreme.

    • Diogenes the CynicMEMBER

      Simple answer stop flying to Bali – but we never do the simple thing…

    • MathiasMEMBER

      Back in the day when I was young and simples, and had me a girlfriend, she used to work for Communicable Diseases Unit.

      Basically, when you catch some diseases ( like AIDs was popular back then ), you end up on a database registry and they keep track of you.

      I believe there was a statistic back then which said 1 out of every 3 people in Australia, had some form of Communicable Disease. I think Hepatitis, Syphilis, Chlamydia, Gonnorea, Aids where pretty popular ones.

      It seems like half the diseases men get are from woman ( -laughs rolls eyes- ).

      I guess Australians have been busy. So much disease, so little time.

      Now you can walk down the street, glance at the guy beside you and your mind will be asking, ” Is he the one in three? “.

    • FMD in a 1980’s Melbourne western suburbs kinda way… another manufactured Agricultral cry suss: Guess were gunna need Trusted Digital Identity Legislation to manage everything after it’s all shut down

  9. GeordieMEMBER

    We’re already cutting back our spending and our mortgage rate has yet to budge, and our budget is far from tight. Dawkins help us!

    • I’ve been cutting back since the start of Covid lockdowns. I was expecting the recession then, but it was just delayed. I’ve been paying down as much debt as possible. Fixed the mortgage a few months back. Gotta ride this period out. I’m always preparing for the worst, hoping for the best.

      • Fishing72MEMBER

        Our spending is down 90% on pre covid. It’s amazing how easily lifestyle accoutrements are dropped when the habit is broken for you. Desire for eating out is gone completely.