It’s official: Australian house prices are collapsing

CoreLogic has released its daily dwelling value results for July, which track price changes across Australia’s five major capital cities.

At the 5-city aggregate level, dwelling values fell by 1.44% in July, which was is biggest monthly price decline since January 1983:

CoreLogic monthly price change

Biggest monthly price decline since 1983.

The collapse in prices was driven by Sydney (-2.2%) and Melbourne (-1.5%), with Brisbane (-0.9%) also recording a solid monthly fall:

CoreLogic monthly price changes

Sydney and Melbourne lead the price bust.

Across the July quarter, dwelling values fell by 2.7%, which was the largest fall since March 2019. But it’s the steepness of the decline that is particularly alarming:

CoreLogic quarterly price change

Big acceleration in price falls.

Again, the quarterly decline in values at the 5-city level was driven by heavy losses across Sydney (-4.7%) and Melbourne (-3.2%):

CoreLogic quarterly dwelling value changes

Heavy quarterly falls across Sydney and Melbourne.

The sharp fall in Australian dwelling values has obviously been driven by the Reserve Bank of Australia’s (RBA) aggressive monetary tightening, which saw three consecutive official cash rate (OCR) hikes in May (0.25%), June (0.5%) and July (0.5%), with economists and markets predicting another 0.5% hike on Tuesday.

You can see in the next chart the sharp decline in dwelling values after the RBA began lifting rates in early May:

Dwelling value changes after RBA rate hikes

Dwelling values dived after the RBA began hiking rates.

Sydney dwelling values have so far declined by 5.3% from its February peak, whereas Melbourne’s are down 3.4%. Brisbane values started declining in late June, but are already down 1.2%. At the 5-city aggregate, dwelling values have so far fallen 2.8% from their peak.

With economists and the futures market tipping an OCR of around 3% by the end of the year – a sharp increase from 1.35% currently – it’s easy to see why Australia’s housing market is facing its biggest price crash in living memory.

Unconventional Economist

Comments

  1. ErmingtonPlumbingMEMBER

    Quite often a customer decides to sell their house when a 10-20 thousand sewer renewal is required making that repair the next owners problem.
    But nobody wants to just give their house away in a falling market so I’m anticipating an increase in rental property sewer renewals but a fall in new owner occupier ones.
    That’s my economic prediction.

    • DingwallMEMBER

      ………… Australians define giving their house away as the last real estate agent’s estimate of the reserve in a rising market plus 20%. Buyer won’t be selling much until things are burning

    • Thanks for the tip.

      We were looking at a place last year and the agent said there was something to do on the sewer . I said to missus it’s either serious and they cover it up or serious and they don’t know how serious.

  2. So how will the banks respond? They will want to juice investor lending as a way of minimizing price falls else their balance sheets blow up. I’m not sure how this will work in the absence of credible outlook for capital gains. What do people think they will do?

  3. This is the correction of the crash up caused by covid zirp. The more talk of collapse and crash the more likely it over corrects ( back to actual value, but that’s another discussion).

    Until it hits late 2019 values it just noise. As for those who claim it because reserve bank told me….well if everything the reserve bank said was true markets would always be orderly and their would never be animal spirits.

  4. StomperMEMBER

    5% fall my ar** – that’s only 1/3 of it judging by the price drops throughout Sydney…..

    Tuesday’s 50points RBA increase will accelerate the fall !

    • 2023HomelessMEMBER

      The teams of statisticians working on all the property indices have been focused on building stratification approaches that work in rising markets. There is no reason to assume the same statistical approach will be responsive over a short period in falling markets.

      I agree transactions seem to be happening at 10-15% less than late last year for comparable houses. And will try to explain what I think is happening with the statistics.

      The quality of what is selling, has shifted a lot. During the upswing and COVID, no one was selling the good properties (not overlooked, fully renovated, good layout). Much of what was selling was poor quality stuff. And no, I do not believe even corelogic adjusts for these factors.

      With the cost of renovation, the unrenovated, overlooked, quirky layout places aren’t selling atm. These are the ‘first home buyer’ properties that were selling late last year. Possibly because the first home buyers are most impacted by rate rises…. While the renovated/quality upgrader homes are selling with consideration of the cost of renovations in mind. So are holding up okay, for now. Well, falling less.

      At some point, after a while on the market, the junk properties will sell. And at large discounts. When they do, the indices will play catch up to what you’re seeing on the ground.

      I do wish there was a series on total volume of bridging finance? As I have a theory that a lot of up graders are holding out on selling their crappy old home, as it will crystallise a poor financial decision. (Ie bigger loan than expected at a time of rising rates)

      • I agree.From what i am seeing (I watch areas on realestate.com, make watch lists and observe the sell price. It looks like more like 10-15% so far. There must be a huge smoothing effect from some areas of the market.

      • Bah! Tom Panos also says his todger is 10-15% bigger than a horse’s … do you believe him? Point is, it’s all dog-whistling for the RBA to stop with the rates and get the debt party going again …

  5. Minor correction so far, how about stretch that graph back to 2019 at least for proper context? Current values are still way way up in the stratosphere.

    • Ideally all graphs would go back to the capital gains tax cut of Howard and Costello. That’s the point where positive sideways movement gets consistently more positive than what precedes.

      • Leroy Huggins

        That also coincides with the massive immigration boost. Note: a lower capital gains tax only produces a large win for investors if demand is already prodding prices significantly up. The act alone, without massive immigration, would not have caused anywhere near as much damage to prices. (A discount on gains in a market with low gains isn’t going to promote a flood of investment, just a small increase). Look at Perth.. higher incomes, same tax regime, much lower migration (since the last boom), prices showing the exact sidewise picture (over that time, constant dollars) you’d expect from lower demand. On the other hand Melbourne & Sydney… the migrant capitals…

  6. Hugh PavletichMEMBER

    Check out New Zealand, China and the United States housing market trends within this article and on the thread …

    New Zealand housing faces biggest ever crash … Leith van Onselen … MacroBusiness Au

    https://www.macrobusiness.com.au/2022/07/new-zealand-housing-faces-biggest-ever-crash/

    Its the ‘multiple stretch’ that is the major problem.
    Bear in mind Ireland went from 4.7 Median Multiple across its metros to 2.8, putting all its Banks to the wall and requiring about 70 billion euro of bailouts from German institutions, that stood to lose the most.

    Anything above 3.0 Median Multiple should be considered ‘bubble value’ to be vaporized. Check out the below and do your own calcs …

    Demographia International Housing Affordability: All Editions

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

    Demographia U.S. Housing Affordability – 2022 Edition .

    https://www.newgeography.com/content/007483-demographia-us-housing-affordability-2022-edition-released

    Median Multiples – Interest.co.nz

    https://www.interest.co.nz/property/house-price-income-multiples#:~:text=Based%20on%20this%20official%20work,on%20the%20US%20housing%20market.

    Bear in mind Australia and New Zealand are the “California’s of the south west Pacific’. Check out on the MB’s Friday New Zealand crash article thread above for current monthly price collapse numbers in California. Truly remarkable !

  7. pfh007.comMEMBER

    The important news is that unemployment is expected to fall below 3%.

    Which means of course that falling asset values are unlikely to cause a problem and at worst might allow for some asset price fluffing / debt peddler complex workers to do something that matters.

    Very low unemployment is the perfect cure for the loss of structural collective bargaining power over the last 40 years.

    Albo and Jim will not need to raise wages if they just ensure that the labour market is very tight.

    Keep the border shut until unemployment starts with a 2.

      • pfh007.comMEMBER

        Yes, but it is unlikely that rates would rise that much.

        It would take very high interest rates to get mortgage payments above disposable income.

        • BoomToBustMEMBER

          Note necessarily, cost of food, utilities and fuel has and still is rising. Not to mention all those liar loans. This is also reminds me how many people are interest only ? Then rates into it roll over of fixed mortgages through to mid next year.

          These are just the factors I can think off, I firmly believe if will not be any single item, but a lot of “straw” that breaks many peoples back here.

          • Jumping jack flash

            I agree btb

            Households have more debt than just mortgages, and many are against the wall already. The important metric is “Disposable income after debt service, food and and utilities”, and thanks to the HEM and the constant need for more debt, everyone is pretty much on equivalent disposable incomes regardless of actual income level. The governing variable in many cases is simply the amount of debt they own.

            The problem will be as house values fall, the 110% LVR debt will be downgraded, banks will be downgraded (maybe a few collapse), LIBOR will eventually rise and interbank lending will stop. Then all the banks begin to implode in turn one after the other, until something is done to reverse it.

    • Falling house prices will drive unemployment up regardless of what they do with the borders. Expect unemployment to rise significantly if these house price falls are sustained as the consumer economy flags.

  8. SkepticviewerMEMBER

    I, do not think so – As an example, one house I looked at was 80km sth west of Brisbane and the price asked, was offers over 300k – the rider on the ad went In “2022 flood water went over the roof of this house” From the photos, the roof was 5 m from ground level.” The council have some restrictions on the land use but an astute renovator has a blank canvas to create their own dream”.
    So prices for uninhabitable wrecks are still high
    Real estate agents inject botox each morning so they can peddle BS with no sign of emotion maintaining a straight face.
    The council I suspect would require you to use triangulation to allow for depth and water flow when designing a houseboat morring anchor point so you can determine the length of chain required.
    The limited land use is boating sheds only
    Oh yes and the property was 40km from facilities and shops
    Call me – sceptical but I see little price reductions – houses that are slightly or much worse than the student flats I lived in 45 yrs ago asking $$$$$$$ or offers over – not a good sign, one can’t expect something for nothing but a livable house in a semi bogan suburb on the outskirts of a city should be affordable, currently, the prices are a joke.

  9. Goldstandard1MEMBER

    A waterfall begins with just one drop. You ain’t seen nothing yet. Spring will be carnage. Stuff ppl have never seen as unemployment AND interest rates go up fast at the same time.

    • I don’t think unemployment will start rising before 2023. Most of the impact of the rate rises on the economy and spending will come via the fixed rate reset which will start next year. Those who borrowed big $$$ during the Pandemic did it on fixed rate 2-3 year TFF money and wont feel the heat untill they roll off those rates.

  10. So when banks ‘stress tested’ peoples ability to repay higher mortgage rates, did that include their household budget being impacted by high inflation? Or did they assume a can opener?

    I don’t pretend to know when this will be over, but I’d say its when we don’t get daily posts on house prices, auction results, someone renovating a shack, how to save on your mortgage by eating vegetable peels etc etc.

      • Jumping jack flash

        I always remember the Coles ad campaign right before the GFC which was something like: “how to feed your family for $10 at Coles” and some talking head with teeth and hair was on there with recipe ideas.

        Everything started off well, and some of the $10 meals were quite fancy.
        And then the 2007 inflation from increased debt spending happened.

        In response the meals became significantly less extravagant.
        Eventually they rolled out the “mince dancers” – M – I – N – C – E in big red letters, waved around.

        And then they pulled it completely, because at that point I assume it became impossible to feed your family for $10 at Coles, even with mince,

  11. TailorTrashMEMBER

    Walked past a bank this avo

    Big poster in the window showed a Chinese lady frolicking in the surf

    Caption
    “Commbank the number one choice of new arrivals “

    Now there’s a good business model …..bring ‘em in and sell them debt ……..that’ll fix thing ………

    • The fly in the surf is that all these new serfs have potentially tasted the power of “mortgage strike” … aaaand coordination here is a lot easier because the western world doesn’t police the social media with the same iron-fist our friendly neighbors to the north do. So, hm, CBA, do you really want these people on your books? Really really?

    • Jumping jack flash

      “Now there’s a good business model …..bring ‘em in and sell them debt ……..that’ll fix thing ………”

      I thought there were systems in place to prevent this?
      Just a few short years ago banks had the issue of new arrivals loading up on debt in their home countries, bringing it all into Australia and using it as collateral to load up on more Australian bank debt, and then buying houses with it.

      I guess that’s no longer a problem now?

  12. Jumping jack flash

    “With economists and the futures market tipping an OCR of around 3% by the end of the year – a sharp increase from 1.35% currently – it’s easy to see why Australia’s housing market is facing its biggest price crash in living memory.”

    Only just warming up.

    We haven’t seen the full extent of the mounting energy crisis-fueled price inflation either. I expect that to peak around Christmas or slightly after. All of that inflation will feed into the RBA’s decisions, but how will the RBA view it?

    They certainly consider the “transitory” inflation from all that highly suspiciously-timed stimulus as “standard” inflation [now] and we see their response even though raising interest rates isn’t likely to have much more of an effect on stimulus spending than to simply redirect it to the banks as increased interest payments, instead of using it to buy services and imported trinkets from shops.

    That incredibly suspicious stimulus’ inflation will hopefully have faded a bit by the time energy prices peak, but the problems that will cause as that stimulus effect wanes in an environment of high interest rates is a collapse in general demand and businesses closing down or laying off staff.

    The current curious 3% unemployment we have all around the world is a direct response to the trillions of dollars of suspicious stimulus.

    My employer (a Europe-based multinational) has announced a 5% reduction in global workforce already, and the problems haven’t even really started!

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