The hefty decline in Australian dwelling values since the Reserve Bank of Australia (RBA) commenced its rate tightening cycle in May has been well documented on this site, and is best encapsulated by the below chart:
Across the five major capital cities, dwelling values have fallen by 7.2%, with 7.1% of this decline occurring after the RBA’s first interest rate hike. The decline in values nationally has also been driven by the nation’s three largest capital cities – Sydney (-10.8%), Melbourne (-6.7%) and Brisbane (-7.2%).
Central banks across the globe have tightening rates aggressively, as illustrated below:
And the Financial Times warns that the “global housing market is heading for a brutal downturn” that will be “the broadest slowdown since the financial crash” in 2008:
“This is the most worrying housing market outlook since 2007-2008, with markets poised between the prospect of modest declines and much steeper ones,” says Adam Slater, lead economist at Oxford Economics. “The ongoing surge in mortgage rates in advanced economies threatens to push some housing markets into steep downturns.”
The IMF agrees. It warns the global housing market is at a “tipping point”.
The below chart from Alex Joiner, Chief Economist at IFM Investors, shows that “the tide of rising rates is sending global prices the same was as Australia’s”:
In my view, Australia’s housing market is especially at risk of correction given:
- Australian households are the second most indebted in the world.
- Australia has one of the highest shares of borrowers on variable rate mortgages in the world.
These two factors combined make Australian mortgage holders particularly sensitive to interest rate hikes and means that the RBA’s monetary tightening will transmit quicker into house price falls than most other nations.
